Australian housing finance commitments fell for the 7th month in succession as the housing market continues to slow alongside the RBA's rate hiking cycle. Tighter financing conditions are working to reduce demand for loans, with housing prices falling as a result. Refinancing activity remains very strong.
Housing Finance — October | By the numbers
- Housing finance commitments (ex-refinancing) came in broadly as expected falling by 2.7% in October to $25.8bn following a 4.4% decline in September. Commitments have fallen by 17.1% over the past 12 months.
- Owner-occupier commitments fell by 2.9% to $17.2bn, a 26-month low.
- Investor commitments were lower by 2.2% to $8.6bn, retracing back to their level in April 2021.
- Refinancing was just below record highs at $17.8bn in October after falling by 1.1% in the month.
Housing Finance — October | The details
Tighter financing conditions due to the RBA's rate hiking cycle continue to weigh on home lending and housing prices. The value of new loans written in October fell by 2.7% to be down for the 7th month in succession. This saw financing commitments (excluding refinancing) sliding to $25.8bn, their lowest level since December 2020.
Commitments to the owner-occupier segment have fallen every month since the RBA started raising interest rates in May. Lending to upgraders has seen a more sustained fall and commitments were down for the 9th month running in October. Construction-related lending (for new builds and newly constructed homes) has retraced to $3.1bn to be broadly in line with pre-Covid stimulus levels. The ending of construction subsidies and the very sharp rises in home building costs over the past year or so have driven this unwind. In the first home buyer market, commitments fell to $4.1bn in October and are back at early 2020 levels.
By volume, the number of loans written to upgraders fell by 4.9% to 21.4k - their lowest level since July 2020 reflecting the slowdown in housing market activity brought about largely by higher rates. Construction-related loans are down by 18.8% over the past year as the home building sector has turned its focus to working through a very substantial pipeline of new homes. Volumes for first home buyers have averaged just under 9k since RBA rate hikes commenced, to be back around mid-2019 levels.
Lending to the investor segment was $8.6bn in October and has cut back sharply since peaking at a record high in March, down 24% over the period. The pullback from investors has been most pronounced down the east coast in New South Wales, Victoria and Queensland.
The monthly flow of refinancing was slightly lower in October but remains around record highs; in a rising interest rate environment, many borrowers are switching lenders for more competitive offers.
Housing Finance — October | Insights
The interest-sensitive housing market is responding to aggressive monetary tightening with financing commitments down sharply over the past couple of months. Alongside this, housing prices nationally are down 7% from their Covid peak in April 2022 according to CoreLogic.
