Banks caution on housing tipped to continue into 2020
Banks are tipped to remain cautious about mortgage lending for the next two years, continuing a trend that has dragged borrowing by investors to a near standstill, and caused a Sydney-led slump in house prices.
Banking experts on Tuesday predicted that a tighter supply of credit would continue to have a major impact on the housing market for next year and possibly longer, as the royal commission hangs over the sector.
Banks will remain conservative in the mortgage market for the next one to two years, S&P says.
The comments came as new figures showed housing investor credit growth had slowed to a new record low, a result of banks slamming the brakes on lending to landlords and people taking out interest-only loans.
At a briefing in Sydney, Standard & Poor's director of financial institutions ratings, Sharad Jain, predicted an "orderly unwind" of the "imbalances" in the housing market, but did not think the trend would seriously damage the economy,or the health of banks.
Tougher regulations on risky and speculative lending had driven the downturn in prices, and this dynamic would continue, he said.
"The bank behaviour, we expect to remain very conservative in the coming at least one to two years," he said.
Sydney home prices have fallen by about 5 per cent in the past year, according to CoreLogic, and Melbourne prices have also been falling in recent months.
Mr Jain did not think the property market would fall "off the bottom" because the depth of the slump would be limited by very low interest rates, healthy jobs growth, and strong demand for homes.
Reserve Bank figures, published on Tuesday, underlined the tighter lending to property investors, with housing investor credit growth falling to just 1.6 per cent, the lowest level on record.
A fall in Chinese buyers has hit the market.
Loans to investors fell by 0.1 per cent in June, the first monthly decline since 2009.
Despite the drop in investor lending, growth in loans to owner-occupiers has remained strong, at 7.8 per cent a year, which has meant overall home loan growth has slowed only moderately.
Stuart Penklis , the head of residential at property developer Mirvac, told the same briefing that solid demand for homes from owner-occupiers was one reason apartment prices in Sydney and Melbourne are unlikely to fall significantly.
Mr Penklis said prices of well-located apartments in the two largest capital cities were holding up. The developer believes there is a "floor" under prices, because of strong population growth, growing popularity of units, and fewer units being built by smaller developers, who are finding it harder to get funding from banks.
"Every crane that's up building a residential development at the moment, when it comes down, it's unlikely to be going up on another residential development, particularly the smaller developers that are feeling that squeeze in terms of funding," Mr Penklis said.
Mr Penklis acknowledged, however, there was likely to be further softening in prices in areas that had been fuelled by strong buying from property investors.
Paul Mirams, a partner specialising in real estate at insolvency firm KordaMentha, said a slide in demand for properties from Chinese buyers would be a drag on the market.
"Broadly speaking we think the Chinese will be a net negative for the next couple of years on residential prices, and that's probably going back to normal, rather than the last four or five years that have not been normal," Mr Mirams said.
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