The latest housing credit data released by the Reserve Bank showed that the expansion of housing credit continued to slow in May 2018.  Housing credit growth is slowing as new housing finance commitments fall as do dwelling values nationally.  Given the slowing expansion of housing credit and falling demand for new finance it seems likely that falls in dwelling values will continue.

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In May 2018, total housing credit expanded by 0.4% to be 4.8% higher over the year.  The 0.4% monthly expansion in credit was the slowest since January 2013 while the 4.8% annual rise was the slowest annual rise since February 2014.  The two charts above highlight that growth in credit is in a slowing trend both monthly and annually.

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Monthly data shows that owner occupier credit is in a slowing trend while annual owner occupier credit growth is just beginning to shift lower.  In May 2018, owner occupier credit expanded by 0.6% over the month which was its slowest rate of monthly expansion since December 2016.  On an annual basis, owner occupier housing credit has increased by 7.9% and has now been falling for three consecutive months.

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Investor housing credit was unchanged in May and as the above chart shows it has been in a clear slowing trend for some time.  The last time there was no change in investor credit on a monthly basis was December 2015 however, it has been extremely rare over the past two decades for investor credit to not be expanding.  On an annual basis, investor housing credit increased by just 2.0% in May 2018 which was the slowest rate of credit growth on record.

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The above chart shows how since macroprudential policies have been in use, the monthly change in investor credit growth has been very closely correlated with the monthly change in national dwelling values.  Given that credit has become tighter and there is little sign of loosening, it seems likely that investor credit demand will remain soft and as a result value growth across the housing market will continue to be dampened.

With tight credit and fewer investors the outlook for the housing market over the coming months appears to be one whereby current conditions continue. What this means is we would expect further value falls in Sydney and Melbourne, the most expensive and investor-centric markets, and quite moderate growth in the other markets where properties are more affordable and investors are less prevalent.  The trend of softening demand from the investor segment also seems likely to persist over the coming months as accessing credit is difficult accompanied by low rental yields and limited value growth potential currently in the market.