RBA’s concerns for housing market downturn

The Reserve Bank has become less confident in the control that regulators have over the escalating housing market downturn.

Reserve Bank governor Philip Lowe. Picture: Kym Smith

The Reserve Bank has become less confident in the control that regulators have over the housing market downturn and warns the “reduced appetite to lend” is having an impact on credit growth.

In his statement following the last monthly board meeting before February, RBA governor Philip Lowe yesterday removed the prior month’s reference to conditions in the lending market remaining “robust” as banks further withdraw from lending to riskier owner-occupiers and amid a drought of investor interest in the property market.

For the first time, Dr Lowe acknowledged tightening credit conditions in the Australian mortgage sector were being driven not just by falling demand from investors as property prices fell, but by banks unwilling to lend to borrowers following concerns during the royal commission about irresponsible lending.

Growing concern in the $1.7 trillion housing market from the RBA comes as new figures show more homeowners are dumping property into the rapidly awakening housing market, with the number of homes listed for sale nationally up 7.9 per cent in November, SQM Research data shows.

The hardest-hit markets of Sydney and Melbourne have seen stock levels surge over the past year with the number of Sydney homes advertised for sale up 20.4 per cent from November last year. Melbourne had a 32.2 per cent spike. Housing prices in Sydney and Melbourne are sliding, with researcher CoreLogic this week recording the biggest national monthly fall in values since the global financial crisis.

“Credit conditions are tighter than they have been for some time, with some lenders having a reduced appetite to lend,” RBA governor Philip Lowe said. “Growth in credit extended to owner-occupiers has eased to an annualised pace of 5-6 per cent. That is down from 9 per cent in mid-2017.’’

JPMorgan economist Ben Jarman said the warning echoed a speech from RBA deputy governor Guy Debelle when he said “the degree and speed of the slowdown is no longer completely within the control of regulators alone”.

“If credit conditions are now tightening pro-cyclically, more than necessarily required by prudential policy, this will keep the RBA cautious in its guidance,” Mr Jarman said.