Australian mortgage sales slump: buyers’ nerves or tightening credit standards?

October 8th, 2007

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Today, this news article caught our attention: Mortgage sales slump as buyers’ nerves fray. In this article, it reported that,

THE number of mortgage sales across Australia fell by 21.2 per cent month-on-month during September, according to an industry survey.

In the past two years, the same index has recorded a seasonal downturn of 8.5 per cent in mortgage sales during September.

Mark Hewitt, AFG’s sales and operations general manager, said last month’s downturn represented a decline of two-and-a-half times the established seasonal average.

Basically, the value of mortgage sales fell 20% in the month of September. Mark Hewitt, who is the sales and operations general manager of AFG, Australia’s largest mortgage broker, was reportedly saying that ?There’s no doubt that concerns about global debt markets and the unknown potential impact of sub-prime difficulties is making property buyers hold off?

We doubt the reasoning of Mark.

No doubt, there were some negative media coverage about the sub-prime crisis in the US and the havoc being wrecked in the global financial markets. But generally, this storm is still largely confined to the financial universe in Australia and has yet to be spilled over to the Australian Main Street. Therefore, to the average potential Australian mortgage borrower contemplating buying a house, will that be a good enough reason to run away?

We suspect the more likely reason is that the havoc in the financial universe led to banks and lending institutions being more wary of lending money i.e. lending standards being tightened.

Another interesting paragraph in the article:

Despite the fall in volume of mortgage sales in Victoria, the average mortgage size broke through the $300,000 barrier in that state for the first time to hit $304,000, up from $289,000 in August.

If the volume of sales fall and yet the average mortgage size had risen, what does that mean? It means that mortgages of lower values had been dropped off compared to the previous month. Does that mean that the purchases of cheaper homes had decreased in September? Who would be buying those cheaper homes? Probably those who are on lower income. Would lending standards be first tightened on those who are on lower income?

These are interesting questions. What do you think?