Plunging mortgage lending levels in Australia mean 'further weakness in house prices is likely'

• The value of home loans in Australia continued to decline in September as credit growth slows.

• Loans to owner-occupiers have now fallen by 11.1% annually in seasonally-adjusted terms, while lending to investors is down 18.1%.

• Seasonally-adjusted, the total value of investor loans fell below the $10 billion mark for the first time since August 2013.

• ANZ’s Daniel Gradwell noted loan sizes are also falling, an indication that further house price falls are likely.

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Residential property lending in Australia declined again in September, in a continuation of the recent trend.

Data from the Australian Bureau of Statistics (ABS) showed the value of housing finance fell by 3.8% to $29.118 billion in seasonally adjusted terms, the lowest level since August 2014.

Loans to owner-occupiers declined by 4.2% in the month to $19.367 billion, while investor loans fell by 2.8% to $9.751 billion.

In seasonally adjusted terms, the number of loans to housing investors fell below the $10 billion mark for the first time since August 2013.

Falls in owner-occupier loans exceeded that of investor loans for the second straight month -- a shift which "suggests that weaker sentiment is now also having an impact on the broader market", ANZ's Daniel Gradwell said.

CoreLogic's Cameron Kusher noted the previous uptrend in owner-occupier loans was due partly to stamp duty concessions introduced in July 2017.

Stamp duty was abolished in NSW and Victoria for houses under $650,000 and $600,000 respectively, while those who bought properties up to the value of $850,000 (NSW) and $800,000 (Vic) were given a concession.

"More recently the data is pointing to an easing of demand from first home buyers," Kusher said.

This chart from Commonwealth Bank's Gareth Aird shows the recent decline in owner-occupier lending by state:

ANZ's Gradwell noted that along with the decline in credit growth, the average loan size is also falling. "This means that further weakness in house prices is likely," he said.

However, Gradwell said smaller loan sizes are a good sign from the perspective of improving financial stability, which has been a central goal of regulators and policy makers given Australia's high levels of household debt.

As at the end of August, loans to owner-occupiers and housing investors stood at $20.568 billion and $10.099 billion respectively, seasonally adjusted.

The monthly declines mean annual falls in loans to owner-occupiers have now fallen by 11.1%, while investor lending is down 18.1% year-on-year.

The number of overall loans issued to owner-occupiers fell by 1% to 50,673, in line with forecasts.

CBA's Aird said the flow of housing credit "has a clear relationship with dwelling prices".

"To date, the RBA has remained relaxed about the fall in dwelling prices because the broader economy has performed relatively well."

However, some analysts forecast the current downturn could be the longest in decades.

And the longer it persists, "the risk of a negative wealth effect impacting consumer spending is rising", Aird said.