Relax, Australian housing bears. Financial regulators think they have this downturn covered

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  • Australia’s Council of Financial Regulators (CFR) appears relaxed about recent weakness in the housing market.
  • It said recent price declines have been “orderly”, adding that it “does not raise material financial stability concerns”.
  • The Council acknowledged that the outlook for housing market activity and prices remains “uncertain”.

Relax, Australian housing bears. We’ve got this.

That’s the broad message from Australia’s Council of Financial Regulators (CFR) latest quarterly statement with members expressing little concern about recent weakness in the housing market.

A day after ABS data revealed that Australian home prices fell at the fastest pace in at least 15 years in the December quarter, the CFR, containing representatives from RBA, ASIC, APRA and the Australian Treasury, described the recent pace of price declines as “orderly”, suggesting there’s little concern at this point in the housing cycle.

“The adjustment in housing prices and activity has been orderly,” the CFR said. “Housing prices nationally have fallen by 6.5% over the past year, but this has followed a period of large price gains in some areas.”

The Council also expressed little concern about a potential lift in financial stability risks as a result of the downturn in prices, suggesting that it “does not raise material financial stability concerns”.

“The improvement in banks’ lending standards — including a lower share of high loan-to-valuation ratio lending — means that households and lenders generally are less vulnerable to falling housing prices than in the past,” it said.

“Despite historically high household debt, signs of financial stress remain relatively contained given a strong labour market and low interest rates.

“The Council noted that while mortgage arrears rates remain low, they have reached a post-financial crisis high. This largely reflects regional conditions.”

On the slowdown in housing credit growth over the past year or so, a major factor behind recent price falls, the CFR continued to suggest it was a result of weaker demand, rather than the impact of tighter lending standards from Australian lenders.

“Members agreed the evidence from data and consultations with banks indicated that the slowing in credit largely reflects weaker demand, particularly from investors,” it said.

“There has also been some tightening of credit supply over the past year as lenders have applied their lending policies more stringently and undertaken more detailed scrutiny of borrowers’ expenses and other liabilities.”

While the comments from the CFR reflect little concern at this point, it added the caveat that the outlook for housing market activity and prices remained “uncertain”.

“The Council agencies will be closely monitoring the extent of any further adjustments, and in particular the ongoing availability of credit.”

The full statement from the CFR can be accessed here.

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