It’s quite a bit to see Australian house prices plummet as the stock of credit continues to grow strongly. But that is the importance of Delta. Often, what matters in the economy and markets is the exchange rate, not the levels.

Put another way, it is the flow of credit that matters for prices, not inventories.

Westpac has more information on how quickly mortgage demand is drying up.

• Home finance approvals continued to move lower in November, with the total value of new loans (ex refinancing) down another 4.1% on the month. Approvals are now 24% below their January peak, though they remain well above their pre-COVID levels and previous 2017 peaks. The result was slightly softer than our expectations.

• The breakdown showed broad weakness with all major segments and states posting declines in the value of new financing. Refinancing was a notable exception, approvals for external workovers hit an all-time high of $19.5bn, up 9.3% on the month and 19.5% on the year, likely reflecting borrowers seeking better deals to cope with sharply higher interest rates and intense competition among lenders. .
• The value of homeowner-tenant loans fell 4.3% per month to 24.3% per year. The detail showed somewhat larger falls in credit for construction (–7%), credit for the acquisition of new housing (–5.5%) and credit for the first home (–5.7%). Interestingly, additional data shows much higher uptake of fixed-rate loans among first-time homebuyers in recent years, accounting for 45% of loan value for the segment in 2020 and 2021, compared to the 34% for non-first-time homebuyers (covering both owner-occupiers and investors). This implies that recent first-time homebuyers have greater exposure to ‘reset shock’ as loans are withdrawn from fixed-rate periods.
• The value of loans from new investors fell by 3.8% m/m to 22.6% yoy, following a slightly more moderate cycle.

• State detail showed a slightly larger decline in Vic (-5.5% MoM) and slightly smaller declines in NSW (-2.9% MoM), Qld (-1.6% MoM), WA (-2, 8% per month) and SA (–2.4% per month). month). Approvals show double-digit declines across all states, led by a 30% drop in NSW, 20-25% declines in Vic and Qld, and slightly smaller drops in SA (-17%) and WA (-12%). %).
• Overall, housing finance data remains in line with the broader picture of a deepening housing market correction. There is little easing in sight with further updates showing that the housing market correction remains firmly entrenched and the RBA is expected to continue raising rates in early 2023. In terms of the housing credit stock, the new data of loans suggest a slowdown in credit growth from a peak of 7.9% in mid-2022 to 6.9% in November will extend to 4s in mid-2023.

The only way I can see the Westpac credit stock forecast bottoming out at 4% is if the RBA cuts sharply in the second half. The great reset for fixed-rate mortgages is about to begin.

houses and holes
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