The analysts have predicted that the reduction of 10% to 15% in borrowing capacity could lead to a 10% price drop.
This would tie in with analysis done by Domain Holdings Australia Limited (ASX: DHG) that showed the average value of property transactions a week was $1.35 billion in November 2016, $900 million in June 2017 and is now approximately $500 million.
The above fall in value is despite an increased number of properties on the market. Therefore, a fall in clearance rates is a big contributor.
Anecdotally, would-be borrowers are finding it much harder to access credit from banks because of the Royal Commission’s findings. People already approved for finance are now seeing their approved amounts being reduced.
However, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group all don’t mean to cause harm to the property market.
Perhaps this standard of lending should have been applied to lending over the past five years, then prices may not have boomed as unsustainably as they have done. People are likely to borrow as much as they can, then worry about the repayments afterwards. That’s why we are seeing mortgage stress at its highest rate in years.
I don’t want there to be a property crash. But I don’t think it’s good for so much of our economy and people’s budgets to be devoted to paying off a mortgage (or indeed paying rent). That money isn’t creating wealth, simply a transfer of money from the buyer to the seller.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.