Housing finance commitments drop to 2013 levels

The Australian Bureau of Statistics’ housing finance data shows continued weakness in all areas of housing finance, including a 4.2 per cent month-on-month decline in the value of owner-occupied housing commitments to $19.37 billion in September, when seasonally adjusted.

The total number of owner-occupied housing commitments similarly fell in September by 1 per cent to 50,673, in seasonally adjusted terms.

This takes the quarterly decline in the number of loans to owner-occupiers building or purchasing new homes to 3.8 per cent in the July–September quarter. Compared to the same period in 2017, the number of owner-occupied housing commitments was down by 13.5 per cent in the September quarter.

Accordingly, the number of commitments for the construction of dwellings dropped by 3.5 per cent to 5,310 in September when seasonally adjusted. 

Speaking of the declines, the Housing Industry Association’s acting principal economist, Geordan Murray, said: “Last month, we noted that investor lending activity had dropped back to 2013 levels, but now owner-occupiers lending has followed suit.

“The comparison to 2013 is important. This was the point in time when the recovery in the housing market began.”

Additionally, the number of commitments for the purchase of new dwellings decreased substantially in September by 3.9 per cent to 2,539, while the number of commitments for the purchase of established dwellings in the same month declined marginally by 0.5 of a percentage point to 42,824.

“The housing cycle has most definitely progressed into a contractionary phase and the shift in sentiment would typically see a drop in demand for new loans,” Mr Murray said.

Mortgage Choice chief executive Susan Mitchell said that the falls could be attributed to a combination of factors such as stricter lending standards and reduced activity in the Sydney and Melbourne housing markets, which have the highest median dwelling values and higher average loan sizes.

CoreLogic’s Hedonic Home Value Index had reported a 2.7 per cent annual dip in national dwelling values in September, largely driven by a 6.1 per cent year-on-year decline in Sydney and a 3.4 per cent decline in Melbourne.

The value of investment housing commitments had also shrunk by 2.8 per cent over the month to $9.75 billion in September.

The quarter-on-quarter decline in investment loans from April–June to July–September was 5 per cent, and 18.2 per cent when compared to the September quarter in 2017.

This fall is largely attributed to the Australian Prudential Regulation Authority’s 10 per cent cap on investor loan growth, which was lifted earlier this year on the condition that lenders demonstrate compliance with the measure. The cap had contributed to a $16.6 billion decline in investment loan approvals in the 2017–18 financial year.

There are also uncertainties around potential limits on negative gearing to new housing and the halving of the capital gains tax concession, as proposed by the Labor Party should they win the next federal election, which could slow down investment lending further, Ms Mitchell noted.

“Indeed, Mortgage Choice data shows investor borrowing has slowed; however, there is potential for a short-term impetus from investors as we near the upcoming federal election from investors who wish to secure the grandfathered tax concession,” the CEO added.

Overall dwelling commitments in September was $29.12 billion, down by 3.8 per cent from the previous month when seasonally adjusted, which Ms Mitchell said represented the lowest monthly value since August 2014.

The number of first home buyer commitments as a percentage of total owner-occupied housing finance commitments rose slightly from 17.8 per cent in August to 18 per cent in September.

“Softening house prices across the country should continue to support home loan demand from first home buyers across the country who may be able to take advantage of stamp duty concessions and first home owner grants. I expect these buyers to support owner-occupied housing commitments over the medium term,” Ms Mitchell said.

However, the HIA believes that the broader weakness in the housing market could be due to first home buyers (FHBs) struggling to secure finance, noting that over the July–September quarter, lending to FHBs  had slipped by 2 per cent from the previous quarter and 3.7 per cent from the corresponding quarter in 2017.

“In context of the more restrictive lending environment that home buyers now face, it is clear that the soft lending numbers are as much to do with would-be home buyers having greater difficulty accessing finance as it is about sentiment,” Mr Murray said.

“At this juncture, it will be important for the regulators to monitor the impact of their earlier interventions to ensure that policy settings remain appropriate in the new phase of the cycle.”

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