Australian housing finance commitments posted their largest month-to-month decline since the start of the pandemic falling by 8.5% in July. The RBA's rate hiking cycle and affordability concerns are set to see commitments continue to retrace lower. Declines in housing prices are accelerating but from very elevated levels in many markets.
Housing Finance — July | By the numbers
- Housing finance commitments (ex-refinancing) declined by 8.5%m/m in July to $28.4bn following a 4.4% fall in June. Markets expected a smaller 3.5% fall. Commitments are down 11.3% over the year.
- Owner-occupier commitments contracted by 7%m/m to come in at $19.1bn (-15.9%yr), more than double the fall posted in June (-3.3%).
- Investor commitments extended the weakness seen in June (-6.3%) posting an 11.2% fall to $9.3bn. This left commitments unchanged from their level 12 months ago.
- Refinancing activity rolled off June's record highs falling by 1.2% over the month to $17.9bn (7.5%yr).
Housing Finance — July | The details
Cooling conditions in housing markets across the country led to an 8.5% fall in housing commitment in July, the sharpest decline seen since the outset of the pandemic more than 2 years ago. Sentiment in the housing market has come under pressure following the strong run-up in prices over the Covid period leading to affordability concerns and from an aggressive rate hiking cycle from the RBA.
Commitments to owner-occupiers saw broad based falls across the segment. The value of loans fell to upgraders (-7.4%) and first home buyers (-9.5%), while construction-related (-5.7%) and alteration loans (-3.3%) also declined.
The decline in commitments came on the back of lower loan volumes. Loans to upgraders were down 6.3% and by 4% for construction-related purposes (new building and/or the purchase of a newly constructed dwelling). But it was a 10.3% fall to first home buyers that stood, with July's total of 8,388 being the fewest number of loans written for a single month going back to May 2019.
Investor commitments are rolling over after an extraordinary run-up over the past couple of years. At the depths of the pandemic investor commitments troughed at $4.2bn in May 2020 before going on to peak at $11.6bn in March 2022. Despite July's decline, the total ($9.3bn) is still elevated and is around the peaks seen in 2015 and 2017.
The main themes playing out nationally are reflected at the state level. Owner-occupier commitments declined in every state, with the falls ranging from -1.8% in Tasmania to -10.1% in Queensland. Weakness in the first home buyer segment was a major contributor, in particular in Victoria (-14.4%) and Queensland (-12.6%). Investor commitments continued to retrace from their cycle peaks, though in Queensland, South Australia and Western Australia commitments are still well above their levels from a year ago.
Housing Finance — July | Insights
A sizeable fall in housing finance commitments in July reflected lower demand as loan volumes declined. Falls in housing prices have accelerated in many markets according to the latest data published by CoreLogic today for August. Housing finance commitments were still at elevated levels in July but these are likely to retrace lower as interest rates continue to rise and falling housing prices weigh on sentiment.
Source: CoreLogic
