Recent analysis by Deloitte Access Economics revealed that higher funding costs for the banks are driving a mini-credit squeeze in the country’s property market, as reported by Business Insider Australia.
The data highlighted how surging global interest rates and stricter bank lending caused by financial services Royal Commission revelations are at the root of the current mini-credit crunch. This, in turn, put more pressure on house prices, which are continuing to decline.
“Higher global funding costs are combining with a sudden tightening in credit availability from the big banks to turn the screws on credit-related sectors,” said Deloitte.
“That’s a big problem for property.”
The consulting firm noted that house values have declined over 16% from their peak in mid-2014 and “price falls could get worse before they get better.”
While the squeeze is happening at the same time when energy costs are also rising, Deloitte noted that the continued trust from investors, as well as income generation, provides a counterbalance.
“[B]usiness confidence is generating a capex recovery and consumers, despite falling wealth, will be getting support from a nascent recovery in wages and from personal tax cuts,” Deloitte said.
“On balance, that leaves the outlook for Oz where it’s been for some time: good without being great.”
Deloitte believes that the east coast is fundamental to growth in Australia this financial year, with New South Wales as the key performer.
“Infrastructure is still the key to current strength, but keep an eye on Australia’s mini-credit crunch: it could prove more problematic in NSW than elsewhere,” the company said.
Deloitte also claimed that the mini-credit squeeze may also end the east coast “stamp duty bonanza” as activity weakens in the property market.
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