Australian Housing Sector Loses Steam -- Update

Tighter mortgage lending rules in Australia has slowed the country's housing market significantly, taking the heat out of a long-running boom that pushed home prices and debt burdens to record highs.

Tighter rules, targeted at the surging investor demand, were put in place by the banking regulator earlier in the year amid rising concern about potential instability for banks, households and the broader economy if the property bubble burst.

Data Thursday showed a 2.3% fall in housing finance permits in September, the biggest in two years, with investor demand crunched by a rising hurdle to finance, coupled with higher interest rates on investment loans.

The value of finance to property investors fell by 6.2% in September, and is down 13.1% from the most recent peak in January.

Kristina Clifton, an economist at CBA said mortgage lending rule changes, and higher interest rates are weighing on investor activity.

More prudent mortgage lending is also driving a rebalancing of the market that is seeing more loans directed to first home buyers, who have been frozen out of the market in recent years.

Lending to new market entrants in September accounted for around 17% of all loans, a 5-year high.

With house price growth now slowed to a crawl across most of the country, fears at the Reserve Bank of Australia linked to the housing boom, is likely to be tempered.

However, household debt continues to climb in Australia at a pace that easily outstrips income growth, meaning further work is needed to arrest the imbalance in the economy. The RBA recently announced it would conduct stress tests on the nation's banks to assess the level of housing-related risk.

Still, higher official interest rates are off the agenda with the RBA confronted with soft inflation outcomes, a jittery consumer, and retail sales in sharp retreat since midyear. The RBA kept its official cash rate at a record low 1.5% at a policy meeting this week. It has kept interest rates unchanged since August 2016.

-Write to James Glynn at

(END) Dow Jones Newswires

November 08, 2017 23:44 ET (04:44 GMT)