Banks Negate Forecast $35b Fall In Housing Loans

The Age

Tuesday December 3, 2002

Sharon Kemp

Australian banks yesterday sought to calm concerns provoked by a survey that forecast a $35 billion fall in the housing loan market in the already half-finished 2003 financial year.

The Big Four banks' strategy was to put distance between themselves and the researcher - the Market Intelligence Strategy Centre - even though at least two of them, Commonwealth Bank and Westpac, are believed to subscribe to MISC's data. The research group has made the prediction that 223,000 fewer home loans will be written in fiscal 2003 than in the 12 months to June 30, 2002. Based on an average home loan of $150,000, the correction amounts to $35 billion.

The banks, the Reserve Bank of Australia and others have so far only speculated about a possible slowdown in home lending.

And the banks were quick to point out yesterday that the MISC forecast did not necessarily translate to a fall in the overall value of the mortgage market.

The speed of their response can be attributed to the value they place on their mortgage businesses.

Housing loans account for more than 50 per cent of the banks' lending books, and all banks have forecast credit growth in 2003 - albeit at lower levels. A 30 per cent rise in housing prices and peak mortgage lending growth of more than 20 per cent has helped support the market valuation of Australian banks.

National Australia Bank economist Alan Oster said yesterday that notwithstanding MISC's forecast that fewer loans would be written this year, it would take more than a 30 per cent fall in the number of new loans to counteract the influence of rising housing prices.

He explained that higher housing values meant bigger loans, allowing banks to write fewer mortgages before the value of their lending books' fell. Mr Oster added that credit growth of about 18 per cent last year was likely to slow to about 13 per cent this year.

But credit growth, or home lending growth, had never reversed in the history of the bank's data.

An ANZ property outlook statement issued last month said the risk of a sharp contraction in house prices seemed minimal but inner-city construction was likely to fall.

Australia's housing stock is valued at just under $2 trillion, according to Reserve Bank data.

Of the $165 billion in loans written last year, $35 billion represents more than 22 per cent.

The research group claims its method of data collection, based on measuring stamp duty, is more accurate than the more common measure, which uses a valuer-general's property-values sampling.

MISC claims its model captures all loans that are settled whereas the Australian Bureau of Statistics-derived figures concentrate on owner-occupied loan approvals by only large lenders.

MISC claims its measure showed that average loan sizes began to fall nationally as early as March.

The June-quarter home loan data supported its forecast of a dramatic fall in mortgage lending, MISC said. In the June quarter, the percentage of lending that comprised refinancing was higher at 28 per cent.

© 2002 The Age

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