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Australian Housing Finance Falls in August

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10/11/2018 | 08:47pm EDT

By James Glynn

SYDNEY--Finance for Australian housing contracted in August as tighter rules for mortgage lending by banks continued to bite, and house prices extended a year-long retreat.

The number of Australian home-loan approvals fell by a seasonally adjusted 2.1% in August from July, the Bureau of Statistics said Friday.

Economists surveyed ahead of the announcement had expected a 1% fall for the month.

Meanwhile, the value of loans for investment housing fell by 1.1% from July, the ABS said.

Australia's housing market is facing stiffening headwinds as the banking regulator continues to enforce tougher criteria for mortgage lending.

Concerns around record household debt and flat wages growth in recent years have prompted a crackdown on riskier lending, stifling credit to fund the buying of homes.

House prices have been sliding over the past year, led by weakness in Sydney and Melbourne. The drop has come despite interest rates remaining at record lows, with economists forecasting the retreat could extend into 2020, and a fall in prices of up to 15%.

Banks have also become more cautious in lending due to the harsh spotlight of a government inquiry into potential misconduct within Australia's finance sector.

A recent interim report on the matter was scathing, alleging widespread wrongdoing by banks, while also attacking finance sector regulators for inaction in enforcing laws.

Economists fear the pressure on house prices will eventually damp consumer sentiment and spending, slowing the economy.

Morgan Stanley said this week that a hard landing in Australian property is growing more likely.

"This would bring negative wealth effects from weaker property prices and high leverage causing a pullback in spending and activity, driving unemployment up to 8%," Morgan Stanley said in a report.

-Write to James Glynn at james.glynn@wsj.com

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