The monthly value of lending to households in June 2019 was $31.16 billion, which was at the highest level in 2 years, according to the latest data by ABS.
Lending to owner-occupiers and investors started a declining period at the beginning of 2018, amid the fear of property market bubble in Sydney and Melbourne.
At the peak of the market, the value of lending commitments (monthly) is $37 billion per month. However, the value declined significantly since March 2018 until recent months, where the monthly value of commitment bottomed at $31 billion in March, 2019.
Looking backward at the long-term trend, the value of lending to households is largely influenced by sentiment and the property market trends; given that wage growth has been stagnant for many years.
Borrowers are willing to take larger home loans, and the banks are willing to supply higher value of home loans, when the property market is expected to increase in value, and vice versa. On the other hand, when buyers are empowered with larger home loans, the prices are generally pushed upwards.
Whether the value of lending commitment continues to push up house prices in the next months will remain to be seen, the historical data suggest there is high chance the market will continue to trend upwards in the next period.
On the ground, clearance rates in Sydney and Melbourne have gathered momentum, where around 80% of properties were auctioned would be sold in recent months.
Are value of lending and house price are statistically correlated?
The descriptive statistics show that the value of lending to households and the prices of houses move together over the last 20 years (the longest available data).
To test the statistical relationship, we built a simple predictive econometric model to test whether the value of lending to household has statistically significant effect on house prices.
The predictive model is estimated and it shows that, on average, lending to household increases by 1%, house prices increase by 1.3%.
Therefore, our data and modelling have proved that the value of lending to households is the key factor that drives house prices in the long-term, where house prices are sensitive to the value of lending to households (which is determined the level of interest rate).
Lending to Households ($million)
Source: ABS
Total Lending To Households (Quarter to Quarter Change, %)
Source: ABS
Median House Price ($): Major Capital Cities
Source: ABS
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