CANBERRA, AAP – Australia’s long running property boom is showing signs of flagging with growth in house prices slowing and demand for mortgages from owner-occupiers remaining in decline.

AMP Capital chief economist Shane Oliver said with mortgage rates at ultra-low levels and the potential return of foreign buyers providing support, price increases may continue for a while yet.

“However, storm clouds are starting to gather for the property boom and we expect a further slowing in price gains ahead of falls from later next year,” Dr Oliver said.

“Rising interest rates are expected to be a big dampener.”

Fixed-rate mortgages are already on the rise, while financial markets are toying with the idea of an interest rate rise next year from the Reserve Bank of Australia after last week’s inflation figures provded stronger than expected.

The CoreLogic home value index rose 1.49 per cent in October, having steadily lost momentum since hitting a monthly growth peak of 2.8 per cent in March.

Even so, house prices nationally were 21.58 per cent higher over the year with over half the country’s capital cities posting an annual growth rate in access of 20 per cent.

CoreLogic research director Tim Lawless says slowing growth conditions are a factor of worsening housing affordability, rising supply levels, and less stimulus.

He said first home buyers are becoming a progressively smaller component of housing demand as prices continue to outstrip wages growth, while new listings have surged and housing-focused stimulus measures such as HomeBuilder and stamp duty concessions have now expired.

“Combining these factors with the subtle tightening of credit assessments set for November 1, and it’s highly likely the housing market will continue to gradually lose momentum,” Mr Lawless said.

Last month, the Australian Prudential Regulation Authority increased the minimum interest buffer it expects banks to use when assessing the serviceability of home loan applications.

It wants banks to assess applications at a rate three percentage points above the interest rate product being offered rather than 2.5 percentage points previously.

“With lockdowns being lifted, and expectations that the economy will bounce back, APRA considered the balance of risks has shifted such that a timely adjustment to serviceability standards was warranted,” APRA chair Wayne Byres told a Senate hearing last week.

BIS Oxford Economics economist Maree Kilroy expects the lift in the serviceability buffer will have a modest drag on lending.

“However, there is a possible risk of more intervention to come with the regulator planning to publish an information paper on its framework for the use of macroprudential tools at some point over the coming months,” she said.

Demand for mortgages is already in decline, notably from would-be first-time buyers.

The Australian Bureau of Statistics said the value of new housing loan commitments fell 1.4 per cent in September, driven by a 2.7 per cent drop in demand from owner-occupiers.

ABS head of finance and wealth Katherine Keenan said this was the fourth month in a row owner-occupier housing loans had declined.

The number of new loan commitments for first home buyers saw the eighth consecutive fall, down 5.6 per cent in the month to be 27.1 per cent lower compared to September 2020.

However, the value of housing loans for investors rose 1.4 per cent to stand 83.2 per cent higher than a year earlier.