Housing at mercy of global lending

RISING global interest rates and tighter bank lending risk triggering a mini credit crunch that could send Australia’s house prices lower, a new report warns.

Australia’s current economic health has earned a “good without being great” rating from Deloitte Access Economics in its latest business outlook.

Overall the global economy is powering along, albeit with some softening in Europe, Japan and Korea, but Australia is benefiting from trading with countries that are in good shape, Deloitte says.

“Yet rising global interest rates are combining with a bout of bank caution on lending ( via extreme vetting of loan applications in the wake of royal commission revelations) to generate a mini- credit crunch,” Deloitte says.

Any crackdown on lending could put further pressure on housing prices, which are already slowing, particularly in the key market of Sydney.

Recent Corelogic data shows Sydney home values have fallen 5 per cent in the year to July 15, while combined values across capital cities are down 2.1 per cent.

Deloitte says those current falls are not significant enough to be a worry for the broader economy.

Housing remains an important driver of wealth and economic growth for Australia, however, and any further drop in house prices could crimp spending of already debt- burdened households.

At a time when weak consumer spending and resultant stagnant inflation remains a key risk for the economy, any further slowdown would be a concern for the Reserve Bank of Australia.

Expanding on its “good but not great” theme, Deloitte says Australian industry is healthy thanks to strong global demand for the nation’s key exports of coal, iron ore and gas.