Australian Housing Market Suffers Biggest Fall Since GFC

Fitch: Australian Housing Market to Be Worst Performer Again In 2019

In a report released by the rating agency Fitch last week, Australia has been forecast to experience the biggest decline in house prices of the year. Fitch project house prices in the country to fall by around 5% this year, having already fallen 6.7% from their peak.

This decline would see Australia registering the worst performing housing market globally for a second consecutive year (rankings based on 24 countries measured by Fitch). The declines are seen as reflective of reduced investor demand for properties in the wake of increased regulatory restrictions on interest-only investment lending.

APRA Scraps Restrictions in Light of Housing Market Declines

In recognition of the impact that such increases in regulations have had on the housing market, the Australian Prudential Regulation Authority (APRA) removed the 30% restrictions on interest-only investment lending in December, which they declared had “served their purpose.”

Fitch: Housing Credit Growth to Fall Further

However, Fitch has affirmed its concerns over the upcoming Royal Banking Commission’s final recommendations due in February, which it feels could further reduce the availability of credit.

In the report, Fitch said that housing credit growth (referring to bank lending) would likely fall further to 3.5% this year, down from 5.1% registered in its last report in October. Loans in arrears by over 90 days have also been forecast to increase by 2020.

Fitch: Mortgage Delinquencies to Rise

Worryingly for the RBA, Fitch has also warned about the potential for a rise in mortgage delinquencies due to homes taking longer to sell. The household-debt-to-GDP ratio is currently at 121% in Australia which creates a major hurdle for the RBA in terms of normalizing monetary policy.

Any upward shift in rates would have severe knock-on effects for already overly indebted households. As such the RBA has consistently stated the need for wage growth to rise and household incomes to increase before it can begin to look at increasing rates.

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