News this week that house prices are falling across most capital cities in Australia will be well received by first homebuyers, and will set alarm bells ringing for highly leveraged housing investors.

That is even truer for apartment buyers and investors – unit prices are falling across all metro areas.

But will it continue? To answer that question you need to delve deeper and look at housing credit growth, which is as important to dwelling prices as the supply of, and demand for, dwellings themselves.

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The first thing to remember, as economist Callum Pickering has shown, is that there’s no such thing as a ‘national housing market’. Each capital city can contain pockets of growth even when other suburbs’ prices are falling.

That said, it is useful to refer to the total amounts of money being lent, and more importantly, to look at how manageable current debt levels are for younger Australians starting out in home ownership.

Finally, a shift

The good news is that a structural change seems to have begun – at last.

As the chart below shows, the size of loans being made to owner-occupiers has come down sharply in past months.

Based on the Australian Bureau of Statistics figures used in the above chart, the size of owner-occupier mortgages to buy new dwellings has come down a whopping 11.3 per cent since peaking in November 2015.

On the ground, that means homebuyers will be turning up to auctions in new housing developments ­– often in far-flung suburbs on the edges of our metropolitan areas – with less power to bid up prices.

In more established areas, the impact will be significant, though not quite as much as for new homes. The size of mortgages for established dwellings have fallen about 8 per cent.

The size of loans for construction of new dwellings – that is, borrowing to build your own place rather than borrowing to buy one from a property developer – has not substantially changed (see the bottom line on the chart above).

When these figures are combined, the overall size of mortgages has declined nearly 7 per cent from peak to trough.

Tricky metrics

Even those figures can deceive, as the average size of loans must be multiplied by the number of loans to work out how much debt is being accumulated.

The chart below shows this figure, across both investors and owner-occupiers, and it is headed sharply down for the first time since the depths of the global financial crisis.

So why is this good news? Don’t we all get richer when house prices rise?

Well no. The run-up in the size of debts over many years have represented a large transfer of wealth from younger to older generations, and have created a dangerous imbalance between wages growth and credit growth.

The whole house of cards remains standing while interest rates are at record lows, but future pressure on rates – particularly from the cost of money in global markets – are a threat to the whole shaky edifice.

Banks have already passed on several out-of-cycle rate hikes to owner-occupiers due to the whole-sale funding squeeze, as well as the cost of having to meeting higher capital reserve requirements sent by the Australian Prudential Regulatory Authority.

And they have hiked mortgage rates for investors even more, due to a ‘speed limit’ on investor loan growth set by APRA.

Together these measures seem to be having the desired effect – a long overdue turn in the market.

That will be good for younger homebuyers for obvious reasons, but it will also be good for the entire economy for less obvious reasons.

The taking on of ever-larger debts by young Australians, though providing attractive profits to older generations, was never a sustainable process.

With this turn in the data, there is at last hope of a return to some semblance of normality.

Read more columns by Rob Burgess here