Credit to remain a ‘formidable obstacle’ to housing growth

In his analysis of the year ahead, CoreLogic head of research Tim Lawless said he expects tighter credit conditions to continue to serve as a drag on the softening housing market but added that competition for low-risk borrowers would remain strong.

“We expect housing finance will remain a formidable obstacle to improving housing market conditions next year, but higher quality borrowers should be able to secure debt at very low rates as lenders compete for their business,” Mr Lawless said.

However, Mr Lawless said that if conditions continue softening, regulators may be forced to change tact.

“If concerns about the decline in housing values and turnover grow amongst the Council of Financial Regulators during 2019, we may see some changes to the current macro prudential settings in order to soften the housing market declines,” he added.

Mr Lawless also stated that the low interest rate environment would “help support buyer demand” but would not have the same impact that it had in the past.  

“In the context of tight lending policies and limited availability of finance, cheap credit isn’t likely to provide the same level of support as we have seen over recent years or in previous periods of declining interest rates,” he continued.

Moreover, Mr Lawless said that the outlook for consumer sentiment is “likely to be similar to what we have seen through 2018”, pointing to the “relative neutral setting with consumer optimism buoyed by low interest rates and improving labour markets and dampened by softer housing market conditions”.

The head of research at CoreLogic also claimed that the upcoming federal election to be held over the first half of the year, is also likely to have an impact, “potentially quelling consumer spirits, at least temporarily”.

Commenting on the outlook for general economic conditions, Mr Lawless added that the Reserve Bank of Australia (RBA) may need to revise its growth expectations.

“Overall, we will enter 2019 with economic conditions tracking below expectations but around longer-term trend levels,” he said.

“There is a strong likelihood the RBA will be revising their growth forecast lower early in the year, with ongoing concerns around household debt and weaker household consumption weighing on policy decisions.

“If the RBA’s forecast for economic growth are downgraded, it’s a further firm sign that interest rates are set to remain on hold for an extended period of time.”

Mr Lawless then noted his expectations for housing supply growth, stating that with dwelling approvals now trending lower and construction activity moving through peak levels, “we should expect additions to housing supply to track lower through 2019”, which he said would “help to stave off more substantial declines in dwelling values overall”.

“The detached housing sector has seen much more sustainable and practical levels of development and we have no concerns around a housing oversupply in this sector of the market,” he said.

The CoreLogic analyst also stated that demand for housing “remains healthy” on a macro-level but acknowledged variations in demand on a state-by-state basis.

“Nationally, we saw overseas migration starting to ease through 2018 and this trend is likely to continue through 2019.

“There is rising debate at both the state and federal level around population growth targets and the ‘big Australia’ debate is likely to be a feature of the upcoming federal election as well as state level political debates,” he concluded.

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