House prices are expected to come under further pressure as result of home loans plunging by the most since the global financial crisis, with price falls now tipped to double to about 14 per cent by leading economists at UBS.
The bank’s economics team, led by George Tharenou, has predicted that the Reserve Bank will be forced to cut rates after Australian Bureau of Statistics data revealed homes loans had dropped by 6.1 per cent in December and by about 20 per cent over the past year.
The economists said that homes loans were the key lead indicator in their thesis that credit was tightening.
UBS blamed the big fall off in loans to investors, which were down by 27.8 per cent in a year, but noted that owner-occupier lending was also weak with a drop of 16.2 per cent.
“Worryingly, even first home buyers retraced sharply after previously recovering, albeit holding a 16 per cent share of total loans, the highest since 2012,” UBS said.
“While investors corrected from a record more than 40 per cent share in 2015, to 28 per cent now, they remain high globally. Separately, the trend of developer loans declined 25-30 per cent year-on-year, to the lowest level since 2014, but recent stability is a mixed sign for building approvals, the economists said.
“The accelerating fall in home loans shows tighter credit is playing out. Looking ahead, while the royal commission didn’t make material changes, we downgrade our long-held forecast peak-to-trough drop in home loans from ‘20 per cent with risk of 30 per cent’, to ‘25 per cent with rising risk of 30 per cent’,” they wrote.
UBS also cut its peak-to-trough forecast of home prices from “falling 10 per cent or more if regulators don’t ease”, to dropping 14 per cent, even assuming the RBA cuts.
The economists warned that Sydney and Melbourne could see falls closer to 20 per cent, which would be much more than double the 7 per cent decline so far.
Other commentators have also noted the falls.
AMP chief economist Shane Oliver said the December housing finance commitments showed continuing weakening, with the value of finance commitments to owner occupiers falling and investors continuing to drop too.
Dr Oliver last month downgraded his forecasts to a 25 per cent drop in Sydney and Melbourne housing prices from the market’s top to bottom, worsening from his previous prediction of a 20 per cent fall.
CoreLogic last month joined the list of property analysts downgrading their outlooks for the housing market, with head of research Tim Lawless predicting values in Sydney and Melbourne would fall 18-20 from peak to trough.
CoreLogic also gave a pessimistic expectations for 2019, predicting values in Sydney and Melbourne will fall 18-20 per cent from peak to trough.
ABS data on Tuesday showed home-loan approvals fell by 6.1 per cent over the month, beating the 2 per cent fall expected by economists. The value of loans for housing investment also fell by 4.8 per cent.
Lending to housing investors was down 28 per cent on-year in December, with owner-occupier lending crunched by 16 per cent in the same period.
The fall off in housing finance has also caused a squeeze in lending to developers, as their projects become more marginal and banks step away from the residential property sector.
Foreign groups that drove the market in the apartment boom are also pulling back after a crackdown on selling to offshore investors, and many are quietly looking to offload their sites.