Home loans sink: Another sign the property market is cooling

Property investors continue to leave the market in droves

Mike King

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Published March 9, 2016 1:40 pm AEDT

The value of housing finance dropped in January 2016 by 0.6%, continuing the recent trend down, according to new data released today by the Australian Bureau of Statistics (ABS).

It's another sign that Australia's property market is cooling, particularly with investors continuing to leave the market.

The total value of loans to investors fell 1.6% to $11,185 million in January 2016, compared to December 2015, and even loans to owner-occupiers dropped – but just by 0.1%.

Owner-occupiers continue to refinance loans at a fast pace, with the number rising by 1.7% in January 2016, following a 2% rise in December. And it appears most borrowers are still seeking out the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) for their loans, despite many non-bank and regional banks offering lower home loan rates.

The data also provided more confirmation that investors have left the property market in droves since last year – as the chart below shows. Total lending to investors has dropped 14.8% compared to January last year – and the fastest rate of decline since February 2009 according to the Australian Financial Review (AFR). The AFR says February 2009 saw loans decline by 21.9%.

investment housing loans Jan 2016 — Source: ABS

AMP Capital chief economist Shane Oliver has told the AFR that the slowdown in lending to owner-occupiers may be more of an issue than falling loans to investors, but the data is consistent with slow growth in housing-related debt. Mr Oliver says this will likely mean slower gains in Sydney and Melbourne property prices than last year.

UBS economists say they expect a housing moderation rather than a downturn, warning that a possible slowdown of foreign investment into Australia could become a major factor in where house prices go.

Foolish takeaway

It's yet another sign that property prices are coming off the boil, particularly in Sydney and Melbourne. What may prop up houses prices though are record low interest rates, which appear to be with us for some time.

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