The latest housing finance data from the Australian Bureau of Statistics (ABS) has revealed a 1.6 per cent drop in total dwellings approved in June, driven by a 2.7 per cent fall in investor lending and a 1.0 per cent decline in owner-occupied credit approvals.
According to an ANZ analysis of the ABS data, in annual terms, housing finance is now 8.4 per cent lower than a year ago, the weakest annual result since April 2016, noting that the decline has been driven by a year-on-year fall in investor lending of 18.1 per cent and a 1.1 per cent slip in owner-occupied housing finance (the lowest annual fall since November 2016).
ANZ pointed to tighter credit conditions imposed as a result of increased industry scrutiny, and it said that it expects further tightening throughout the year.
“Tighter credit conditions continue to impact, reflecting APRA’s earlier supervisory measures as well as additional tightening in the wake of the royal commission into financial Services,” ANZ said.
“We expect credit conditions to tighten further over this year and, as a result, to see further weakness in house prices and building approvals.”
In his address to the Anika Foundation Luncheon on Wednesday (7 August), Reserve Bank governor Philip Lowe also made note of the weakening credit and housing markets.
“Borrowing by investors has slowed considerably, largely because of reduced demand by investors,” the RBA governor said. “There has also been a tightening of credit standards. While banks are competing strongly for customers with low credit risk, their appetite to lend to riskier borrowers has lessened a bit. Some of the non-bank lenders are providing credit to these borrowers.”
However, Mr Lowe claimed that such changes have been “helpful” in reducing the “build-up of risk”, but he said that the RBA would be closely monitoring further developments.
“This change in financial trends has helped reduce the build-up of risk. It is helpful that this change is taking place at a time when the world economy is growing strongly, the unemployment rate is trending lower and the economy is recording good growth,” the governor added.
“This is assisting with the adjustment and means that, notwithstanding the changes in the housing market, we still expect consumption growth of around 3 per cent over each of the next couple of years. We do, though, need to keep a close eye on the housing market and housing finance.”
FHB activity continues to rise
Despite a slowdown in overall credit activity, the ABS data revealed that first home buyer (FHB) activity increased in June to 18.1 per cent of all total dwelling approvals, up from 17.6 per cent in May.
Commenting on the FHB figures, RateCity research director Sally Tindall said: “First home buyers are finally getting some time in the sun. There’s space in the market for them to find their feet without having to go toe-to-toe with cashed-up investors.
“While a lot of investors have sworn off property until the bottom of the market hits, first home buyers who are looking for a place to call home for the next five or 10 years are often more focused on the long game.”