Listing spike, lending restrictions could balance market

Rising property listings and the likely introduction of lending curbs could help level the playing field for buyers and sellers

Listing spike, lending restrictions could balance market

Rising property listings and the likely introduction of macroprudential lending restrictions may level the playing field for buyers and sellers somewhat as reduced competition meets a drop in demand.

After stumbling off the blocks in the spring, the number of homes being offered for sale is finally starting to rise nationally, according to a report by The Australian. New listings have risen 15.7% since the recent low in mid-August on a rolling four-week basis, which is expected to help dampen the competition from buyers that is currently pushing up prices.

At the same time, banking regulators have announced that they are devising strategies to stem the rising tide of household debt. Recent figures from the Australian Prudential Regulation Authority showed that 6% of loans administered are at a ratio of six times income, The Australian reported.

AMP chief economist Shane Oliver said lending restrictions and a rise in listings would contribute to slowing property price growth to 7% through 2022, from the 21% growth expected this year.

Market watchers believe a regulatory crackdown on lending could take a variety of shapes, including instituting limits on high debt-to-income mortgages and raising the interest rate at which loans are assessed from the 2.5% buffer over the current interest rate to 3%, The Australian reported.

The implementation of macroprudential measures in 2017 cooled house prices almost immediately. Despite the fact that the measures largely targeted investors and interest-only loans, extra scrutiny from banks made it more difficult for buyers to get financing approved, and prices dropped precipitously, The Australian reported.

Read next: APRA planning macroprudential framework

But buyers hoping new regulation will make housing more affordable may be in for a disappointment, according to CoreLogic research executive Tim Lawless, who suggested that a rise in interest rates is more likely to significantly impact prices than a crackdown on lending.

“Less buyer activity generally occurs when assessing credit becomes more challenging,” Lawless told The Australian. “Of course, as we see less demand in the marketplace, that generally implies that there could be less upward pressure on housing prices, especially if we do see a rise in total listing numbers, which is probably likely. Will that be enough to drive prices lower? Probably not. I think it will certainly take some steam out of the market; we’ve already seen affordability constraints pile up. But I don't think we’re going to see housing prices really move into a downward cycle until we start to see more certainty around interest rates, and that’s probably going to be another 18 to 24 months away.”