Australian housing finance declined for the 11th month running in December. Commitments have fallen by 31% from their peak in early 2022 as RBA rate hikes and tighter loan assessment criteria have impacted. House prices nationally are running about 10% below their COVID peak but are likely to see further falls.
Housing Finance — December | By the numbers
- Housing finance commitments (ex-refinancing) fell by 4.3% in December to $23.4bn, a decline of 29.3% over the year. Commitments were down by a similar magnitude in November (-4.2%).
- Owner-occupier commitments contracted by 4.2% over the month to $15.6bn (-29.8%yr), back to levels last seen around the outset of the pandemic in 2020.
- Investor commitments posted a 4.4% fall to $7.9bn (-28.3%yr), a 21-month low.
- Refinancing eased in December (-1.5%), but the level remained around record highs at $19.1bn, an elevation of 18% since December 2021.
Housing Finance — December | The details
The value of housing finance commitments continues to fall reflecting the effects of rising interest rates, tighter loan assessment criteria, and declining housing prices. Commitments have now fallen for 11 months running, with December's total ($23.4bn) almost 31% below the January-22 peak ($33.8bn). Both the owner-occupier (-31.9%) and investor segments (-30.6%) have seen unwinds of similar magnitudes from their respective cycle peaks.
In the December quarter, commitments fell by 10.6% following an 11.7% decline in Q3. The owner-occupier segment (-11.3%q/q) saw a larger fall than investors (-9.0%q/q), but both have now declined for 3 quarters in succession and are contributing to the downswing.
The volume of loan approvals to owner-occupiers is unwinding at a similar pace to the value of commitments, indicative of weakening demand from higher interest rates. The upgrader segment saw an 11.7% fall in loan volumes in Q4, with the value of approvals down by 11.4%. Construction-related loan volumes contracted 12% in Q4 and 11.1% in value terms. Volumes coming through in the first home buyer market were down by 8.6% in the quarter, registering as a 7.9% fall in commitments.
The backdrop of rising interest rates has seen refinancing activity resetting to record highs since the RBA commenced its hiking cycle in May. Although there was a slight decline in December (-1.5%), the value of refinancing was only just below record highs. This has been mainly led by owner-occupiers (21.2%yr). Refinancing to investors is up 11.7% over the year but is below the previous peak in August-21.
Housing Finance — December | Insights
Rising interest rates and tighter loan serviceability criteria are having a major effect on the Australian housing market. According to CoreLogic, housing prices were down by a further 1% nationally in January, the 9th consecutive decline. Prices are down by 8.9% from the cycle peak in April-22 and this is likely to widen further yet.
