Restricted lending can hurt economic conditions

By Kay Rivera

CoreLogic Head of Research Tim Lawless the economy was likely to be affected, and home prices driven lower.

Commenting on the recent Australian Bureau of Statistics (ABS) report that revealed lower home finance commitments, CoreLogic Head of Research Tim Lawless the economy was likely to be affected, and home prices driven lower.

Data from ABS showed that overall value of housing finance commitments was down 5.1% between July 2017 and July 2018. Since the record high in the value of housing finance in August 2017, the value of commitments has reduced by 7.0%, a drop of about $2.35 billion.

Notably, though, owner occupier lending rose 1.1% over the previous year (including refinanced loans) and was only 1% below than record highs.

Lawless acknowledged that when credit slowdown occurs people instinctively think about its effects on mortgage brokers and lenders. However, he pointed out that the impact of the slowdown in lending activity works like a domino effect – it will hit more industries after housing.

First, he pointed out that less lending results to fewer home sales for real estate agents and developers. Consequently, there will be reduction in building and pest inspections, therefore dampening businesses related to these activities.

Further, it will also lead to less conveyancing for lawyers and a slump in stamp duty revenue for state governments.

Finally, many forget that when people purchase a home, they also spend on household items such as appliances, white goods and home furnishings. From there, one can observes that lending has strong relationship with household consumption.

“Less spending from households has direct implications for Australia’s economic prosperity, considering consumption comprises close to 60% of our gross domestic product,” Lawless concluded.

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