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The divided state of Australia’s property market


The divided state of Australia’s property market

In this week’s video insight, I explore the divided state of Australia’s property market, highlighted by the latest Australian Bureau of Statistics (ABS) figures. With new home lending showing an unexpected decline, the market seems to be at a crossroads between tightening credit conditions and rising investor interest.


Depending on how you read the stats, the property market is going very well indeed… or not very well at all.

As you can see on this first chart, Australian Bureau of Statistics (ABS) figures released in the last week or so reveal new home lending fell 3.9 per cent in January from December, contrasting with analyst expectations for an increase and suggesting the screws are sufficiently tight to put a lid on house price gains this year.

Those ABS stats revealed that the value of new home loan commitments fell to $25.1 billion from $26.1 billion in December. This was the second consecutive monthly contraction among first-time home buyers, older owner-occupiers, and even investors.

New home lending obviously leads to purchases and turnover. A drop in lending today means a drop in buyers buying later.

But not everyone is feeling down. Certainly not real estate agents – are they ever? They’re promoting a different picture revealed by the ABS data release. Looking at December rather than January ABS data, they note lending to property investors reached a six-year high as a share of total home lending.

According to the ABS, 36 per cent of all housing finance in December went to investors. This is the highest level since 2017 and way up from the circa 23 per cent share held in the COVID-19 slump of 2020.

While some real estate agents believe we are off to the races again, including one Sydney Lower North Shore agent who told clients, “… it’s game on, folks!” the reality is that while investor share is back up to 36 per cent, it was more than 40 per cent in early 2017 and over 45 per cent in 2015.

The fact remains that while the share of investor loans has increased, the pie itself is shrinking.

The ABS’s most recent data reveals that both total loan ‘volumes’ and ‘values’ declined.

New loan commitments to property investors fell 2.6 per cent from December to $9.2 billion, and over the 12 months to January, the $105.2 billion in new loan commitments to investor buyers was down 8.1 per cent from the same period a year earlier.

Typically, this should result in the brakes being put on house price increases. Remember, the single biggest driver of property prices is simply ‘access to credit’. If fewer people are accessing credit, pricing tends not to soar.

As can be seen in this chart from PropTrack (which, by the way, is not tracking house prices, but the rate of change of house prices over time), house prices are still rising on an annual basis, but with the exception of Canberra and Adelaide, the pace of increase has steadied or is declining slightly. This also happens to be consistent with recent transaction volume and auction clearance data.

It is simply the case that the slower rates of home price increases reflect the restrained mortgage activity trends.

It is, however, also the case that investors are now driving a larger share of lending activity. And that might have something to do with all those tight rental market stories we’ve been hearing about.

Sharp rental increases reported by tenants through the media will influence buyers to invest and attract them into the market.

Meanwhile, according to CoreLogic, residential vendors averaged $310,000 in gross profits during the December quarter, which was 6.9 per cent higher than the previous three months.

It seems to me we have entered a bit of a holding pattern. Property owners and Investors will look forward to interest rate cuts, which, unfortunately, could push house prices even further out of reach for many.


Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. As a buyer looking in Sydney’s North what isn’t factored in are the huge numbers of Chinese buyers. With prices going well above reserve I’ve observed many are not borrowing but in fact cash buyers. This is distorting the figures. We also have no AML/KYC laws regarding residential real estate. That you need a salary of 600,000 per annum to buy the average house in the Northern beaches(according to news.com) should be telling.

    • Thanks for sharing. Hard to compete anywhere with cash buyers. The changes to the golden ticket visa system will be having some impact but it does appear muted.

    • Thanks for sharing. Hard to compete anywhere with cash buyers. The changes to the golden ticket visa system will be having some impact but it does appear muted.

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