I find it quite interesting if not funny that people seem to think at current dwelling prices, lenders are/will be more willing to lend than after a price fall of 20-25% and start tightening credit 'right-up'.
I tend to think, lending to borrows after 20-25% fall means the mortgage amount to be lent is 20-25% less - meaning borrowed debt coverage ratios are likely to be much better, as most people will still have the same jobs they had and their pay/income levels are unlikely to have changed much. Again take Perth for example, most people still have jobs, their pay is unlikely to have changed much unless you were employed in resources or resources related jobs or any of the other areas that have been hit hard by the downturn.
Perth housing for FHB is now much more affordable than it had been for years. Isn't improved affordability meaning LOWER RISK!.
But a decade ago FHB were told they were going to be priced out of the market forever..
The main issue I can see from a large fall in Syd and Melb markets is that cost of credit/funds for the banks will likely end up being higher, hence interest rates will probably go higher. However higher interest rates could then precipitate further prices falls and lead to further improvements in affordability and it would mean the 'Australian dream' would once again be much more accessible.
As market price falls, buyer activity could be expected to fall and hence demand for credit will also trend lower. As demand for credit trends lower, the banks requirement for funding should also trend lower right..
So the further prices fall, the lower the risk of new lending will end up being!
