Housing Finance — November | By the numbers
- Housing finance approvals to owner-occupiers (excluding refinancing) fell by 0.9% in November to 51,967, which was slightly better than the 1.5% decline forecast by markets (prior revised +2.1%m/m from +2.2%). Over the past year, finance approvals have fallen by 7.9% (prior -4.8%Y/Y).
- The total value of housing finance commitments (excluding refinancing) fell by 2.9% in November to $A22.944bn — its lowest level since January 2014 — with the annual decline deepening to -16% from -11.6%Y/Y to October.
- Lending to owner-occupiers (excluding refinancing) fell by 1.7% in the month to $13.611bn having fallen by 10% compared to the level from a year earlier.
- Investment lending contracted by 4.5% in November to $9.334bn — its lowest level since mid-2013 — marking a 23.4% slide over the past 12 months.
Housing Finance — November | The details
Looking at the breakdown, the ABS reported a 2.9% fall in the total value of 'new' housing finance commitments made in November to $22.944bn. Most of that fall came from a further weakening in the investor segment, which fell by 4.5% (or by around $444m) to $9.334bn to its lowest level since June 2013. Lending to owner-occupiers declined by 1.7% (or by approximately $231m) to $13.611bn.
The value of refinancing commitments eased by 0.9% in the month to $6.184bn.
Activity in the first home buyer segment looks to have lifted in November with loan approvals increasing by 3.5%, though the average loan size had contracted slightly.
According to the latest estimates, the average loan size for first home buyers eased by 0.7% in November to $336,500 (+2.8%Y/Y), while the non-first home buyer average also eased by 0.3% to $395,500 (-1.7%Y/Y). As the chart, below, highlights, the average loan size for both categories have been falling since mid-year, which reflects both falling property prices and the impact of tighter financing conditions reducing borrowing capacity.
In terms of loan approvals made to owner-occupiers, the 0.9% fall in November to 51,967 was better than expected (-1.5%) but have fallen notably by 7.9% over the past year. This weakness has been most apparent in construction-related approvals, referring to finance approvals for owner-occupiers to either purchase a newly-constructed dwelling or to build a new home (including off-the-plan sales), which have fallen by 12.3% over the past 12 months compared to a 7% slide in approvals to purchase established dwellings. A continuation of this trend is likely given the ongoing weakness in building approvals data, which followed through to a decline in dwelling commencements in the September quarter as reported by the ABS yesterday (see here).
The ABS does not provide finance approvals estimates for the investor segment.
Across the states, the detail fo owner-occupier finance approvals in November was; New South Wales -1.5%m/m (-11.3%Y/Y), Victoria +0.7%m/m (-5.6%Y/Y), Queensland -0.7%m/m (-9.6%Y/Y), South Australia -0.8%m/m (+1.0%Y/Y), Western Australia +2.4%m/m (-0.7%Y/Y) and Tasmania -9.2%m/m (+3.5%Y/Y).
As the chart, below, shows, approvals in New South Wales have continued to slide over the past year, while Victoria has also been trending lower around a more volatile profile. Those two states have led the national decline, though the deterioration in Queensland should not escape focus, particularly as the state enjoys affordability advantages over the two 'majors'. Against that trend, approvals in Western Australia have been becoming gradually less negative.
Housing Finance — November | Insights
The sharp slowing in housing finance approvals over the past year reflects the well-documented impact from tighter lending standards in response to macro-prudential policies implemented by the banking regulator APRA. These policies have had a telling impact on slowing housing finance growth, particularly in the investor segment, which led the regulator to announce the final unwinding of these measures in late 2018, applicable from January 1 this year.
With property prices on a national basis continuing slide following the tightening in lending standards, this has also had an impact in slowing the demand for housing finance given an expectation for further declines as indicated by yesterday's Westpac-Melbourne Institute of Consumer Sentiment survey (see here). That survey also highlighted two interesting points. Firstly, while falling property prices have played a part in easing affordability concerns, the tightening in lending standards have been working in the other direction, as seen by the reduction in average loan sizes in today's release. Secondly, the expectation for further falls in prices could result in prospective buyers waiting for that to play out before stepping into the market.
All-in-all, there is little in the data to hand to indicate that the deterioration in housing finance is reaching its conclusion. Lastly, for technically-minded readers, the ABS confirmed today that this Housing Finance data series will now be discontinued. In its place, the Bureau will now publish a monthly series called Lending to Households and Businesses, which combines the Housing Finance and Lending Finance releases, from next month onwards (see the details here).
