The Australian housing market is a key sticking point that could threaten to derail an otherwise strong economy. With a number of factors coming together to create difficult headwinds for the market, lending is at its lowest level since 2010.

The Reserve Bank of Australia (RBA) held off on changing the cash rate for now. It recently admitted that although it would like to bump the rate up, it is aware that current lending rates may require a change in tactics altogether.

Now, the Australian Prudential Regulatory Authority (APRA) is wading in with new research that suggests that the number of people buying homes in Australia is even lower than previously thought.

After the Royal Commission inquiry into financial misconduct had a severe effect on the profit margins of major lenders, many opted for out-of-cycle mortgage rate hikes to claw back returns. However, it appears that this may well have discouraged people from buying a house at all.

This news comes at the same time as the Australian housing market value average slumping to a level not seen since the 2008 crash, although many economists have been quick to confirm that they do not believe that the economy is open to the same set of conditions, and a recession is unlikely.

APRA said that there was a 7.4% decline in home loans for the year-long period to September 2018, and the total lending amount dropped from $96.4bn to $89.2bn.

While these figures relate to lending practices for investors, a similar pattern has also affected lending to owner-occupiers. These figures fell 4.6% during the same period, suggesting that not only have lending rates gone up and house prices gone down, but also that people do not have enough incentive to go higher on the housing ladder.

One positive aspect of this situation is that the big lenders seem to finally be listening to what came out of the financial misconduct inquiry, with much ire reserved for the practice of interest-only loans. These have dipped to just 16% of new lending, while at the height of some of the scandals, they neared half of all lending. The news that the number of loans given out in general could be falling partly due to the curbing of risky loans means that the problem may not be as serious as it could have otherwise been.

The issue with interest-only loans is that people are less likely to pay them back in full and on time, and the inquiry showed that the major banks gave many of them out in the first place. One of the key mandates of the inquiry was to try and change the sales-first culture around providing loans, and it appears that this may be starting to have an effect.

Interestingly, new data from the Australian Bureau of Statistics indicated that the number of people applying for home loans has actually gone up by 2.2% for the month of October.

One industry expert, Susan Mitchell, suggested that this could finally mean that the drop in house prices has reached a level of perceived affordability for the average Australian, a trend that should last into 2019.