As per the bank’s projections, investor credit demand for Australia’s housing sector would fall from 9.1% in 2026 to 4.5% in 2027 and 4.4% in 2028, as higher higher interest rates and policy changes weigh on the industry’s future prospects.
“Total housing credit growth would slide to 4.7% in 2027 from 6.8% in 2026,” Westpac said in a presentation. It, however, expected a slight improvement from owner-occupied credit demand to push total credit growth to 5.2% in 2028.
The outlook has further reinforced investor fears about Australia’s banks, long buoyed by record property prices and favoured for their reliable dividends, potentially facing an uncertain trading environment , as there is no clear-cut direction about the Trans-Tasman country’s interest rate direction.
The poor outlook weighed on Westpac’s rivals, too, with shares in Commonwealth Bank of Australia, National Australia Bank and ANZ all down more than 2%, as of August 10.
“However, Westpac’s shares have underperformed its rivals this year, under pressure as investors forecast the bank’s net interest margin, a key gauge of profitability, could fall slightly next year,” said Citi analyst Thomas Strong.
The decision of the Anthony Albanese government to scrap generous tax concessions to property investors has rattled the Australian housing market. It has also become a headwind for Australia’s top four banks as they control more than 70% of the national mortgage market and count on home loans as a core profit engine.
Auction clearance rates have fallen to the lowest levels in six years, while nationally average prices are down about 2% over four months, according to data from property consultant Cotality.
The 20% fall in mortgage applications at Westpac was double the decline it reported in the weeks after the government announced its tax changes.
Rival NAB, on the other hand, saw its mortgage applications falling 15% during the May-July period.
“The undersupply of housing combined with population growth is expected to partially offset the impact of higher interest rates and recent Federal Government policy changes on the housing market,” said Westpac CEO Anthony Miller.
As per the lender’s insights, Australian households remained under pressure from higher living costs, though business investment and overall customer resilience continued to support activity.
Westpac reported cash earnings of AUSD 1.8 billion (USD 1.27 billion) for the quarter ended June 30, down from AUSD 1.9 billion a year earlier.
The bank’s core net interest margin was broadly stable during the quarter, while its lending and deposit books rose 2%, reflecting broad-based growth across the Australian portfolio.
Westpac’s common equity tier 1 capital ratio stood at 12.1%, remaining way above regulatory requirements while providing balance sheet flexibility.
Housing industry under severe pain
Home prices in the Trans-Tasman country have suffered a second month of steep falls in July, with headwinds like higher borrowing costs and unease over tax changes are going to test the resolve of the nation’s central bank.
Figures from property consultant Cotality showed national home prices fell 0.7% in July from June, the largest monthly drop since December 2022. Annual growth slowed sharply to 5.3%, well below the double-digit pace enjoyed early in the year.
Sydney and Melbourne again led the monthly decline with falls of 1.4% and 1.2% respectively, leaving both more than 5% lower than their recent peaks.
The slowdown also spread to mid-sized cities like a wildfire, with Perth’s once-booming market now being flat.
Gerard Burg, Cotality’s head of research, noted reported prices for the previous two months had also been revised lower, reflecting the speed of the downturn underway.
“These revisions highlight the rapid evolution in the market, particularly across the mid-sized capitals. We have observed a deterioration in the flow of new listings across the country in the recent weeks, led by Sydney, as potential vendors assess a weak market and choose to wait until conditions improve,” he said.
The sector’s poor health also found a repeated mention in the words of Reserve Bank of Australia Governor Michele Bullock in July. She also indicated that the central bank is being done raising interest rates after three hikes this year.
“A sustained fall in housing turnover would have wide implications for the economy given the housing sector’s extensive links to industries ranging from real estate services to tradespeople and construction,” Bullock said.
Data from the software company PropTrack too showed its measure of home prices falling 0.3% in July, the fourth straight month of losses, with Sydney down 0.6%.
The agency, like Cotality, blamed proposed curbs to tax benefits on investment properties behind poor buyer confidence, while noting that ongoing price falls could be leading buyers to wait until values stabilise.