Major bank chief predicts inner-city housing downturn

Speaking at a media briefing yesterday following the release of the group’s half-yearly results, Westpac chief executive Brian Hartzer provided his outlook for the Australian housing market.

“We expect price growth to slow, especially in Sydney and Melbourne, as supply begins to catch up with demand and regulatory action on investor activity and interest-only lending flows through,” Mr Hartzer said.

“We don’t expect significant price drops in these markets, although there will be certain pockets where overbuilding, particularly on inner city apartments, may experience falls,” he said.

“Markets such as Perth and other areas affected by the slowdown in resource related investment will continue to face challenges.”

Mr Hartzer said he expects housing credit growth to slow to 5.5 per cent over the next 12 months.

Westpac posted a net profit of $3.9 billion for the half year to 31 March, up 6 per cent on the first half of 2016. Home lending played a key role in the result, with Australian mortgages up 6 per cent.

While he is confident about the current levels of mortgage serviceability, Mr Hartzer did flag high levels of household debt and the impact of future rate hikes on economic growth.

“As highlighted by the Reserve Bank governor last week, mortgage serviceability remains strong overall and consumers generally have significant equity backing for their loans,” he said.

“That said, relatively high debt levels mean that increases in interest rates would limit consumers’ ability to maintain or increase spending to support economic growth.”

Westpac has made a number of changes to its home loan rates in recent months, with the most recent move resulting in a hike of up to 30 basis points on the bank’s interest-only fixed-rate loans.

“There has been a shift from investor-led demand to owner-occupier demand as a result of some of the changes that have flowed through,” Mr Hartzer said.

“There have been increases in prices on investment property, which has been driven by the regulators. The slack of that has largely been taken up by owner-occupiers, which I think most of us would say is a good thing.”

[Related: Debt binge has left Australians exposed to future shocks]