With the release of the banking commission interim report, there is a chance that already tight credit conditions could tighten even further. The theme from the report is that regulators should monitor and enforce existing policy much better, while lenders and brokers need to place client interests ahead of profits. This implies a more conservative lending approach going forward which is likely to impact further on credit availability.

The latest credit aggregates from the Reserve Bank show housing credit growth tracking at the lowest level in almost five years and investor related credit is growing at the slowest pace on record.

If credit conditions do tighten further from here, we can expect housing market activity to follow suit. CoreLogic estimates on settled sales activity are down 10.0% year on year; substantially further in Sydney (-18.5%) and Melbourne (-15.8%).

While credit availability is a key factor in the slowdown, other factors are also dampening housing market conditions.

Investors, who still comprise 41% of the value of new mortgage demand, are being disincentivised by higher mortgage rates and stricter servicing criteria, as well as low rental yields and weak capital gain prospects.

Corelogic believes changes to taxation policies related to housing, should there be a change of government at the next federal election, could also weigh on investor sentiment.

Changes to demand side factors are also evident. Nationally, the rate of net overseas migration was down almost 9% over the twelve months to March 2018, which is detracting from housing demand. The slowdown is being most felt in New South Wales with a reduction of 13,100 net overseas migrants over the twelve- month period.

While the housing risk profile is heightened, economic conditions remain healthy and mortgage rates are set to remain low into 2020.

Labour markets have strengthened, unemployment is trending lower, and under- employment is at its lowest level since 2014. Although mortgage rates edged higher in September, the cost of housing debt remains at levels not seen since the 1960’s, which should help support demand and underpin house prices.