Australian housing finance falls 11.6% in May

Australian housing finance commitments posted a record monthly decline of 11.6% in May highlighting the scale of the disruption on the housing market brought on by the COVID-19 pandemic. Commitments to owner-occupiers slowed to their lowest level since mid-2019, while investor commitments have turned over to be at their weakest level in 17½ years.      

Housing Finance — May | By the numbers

• Housing finance commitments by value contracted by 11.6% in May (vs -5.5% expected) to $16.415bn to its lowest level in 12 months following on from the 4.8% decline in April. Commitments remain higher over the year but only just at 1.8% coming well down from an 11.2% pace for the year through to April. 
• Owner-occupier commitments declined by 10.2% in May to a 10-month low of $12.314bn after falling by 5.0% in April. Annual growth has decelerated to 7.3% from 14.8% a month earlier — this after reaching a peak in this cycle of 22.5% in March. 
• Commitments to the investor segment continued to unwind pulling back for a fifth straight month with a 15.6% fall in May (-11.9%yr). At $4.101bn, commitments to the segment have hit a 17½-year low. 

Housing Finance — May | The details 

The disruptions to the housing market caused by the COVID-19 pandemic were on full display in today's release as the value of commitments made to owner-occupiers (-10.2%), investors (-15.6%) and in aggregate (-11.6%) all turned in their sharpest monthly declines on record going back to mid-2002. The impact of social distancing restrictions saw a dramatic drop in housing-related activity from late March through April following the prohibition placed on open house inspections and public auctions and today's report is a consequence of this. The other key point to highlight is the surge seen in refinancing demand. Back on March 19, the Reserve Bank of Australia lowered the cash rate to its effective lower bound (0.25%), introduced yield curve control and launched its Term Funding Facility offering at least $90bn in 3-year liquidity to the banking sector fixed at 0.25%. As a result, borrowers have looked to take advantage of the more favourable terms lenders have been able to offer with owner-occupier refinancing lifting by 45.1% since March to be up by 91.6% on a year ago. 

Loan approvals made to owner-occupiers to purchase established properties have fallen to their lowest level on record at 16,969 after falling by 9.1% in May following on from a 6.3% decline in April. Construction-related approvals have been more resilient falling by only 2.2% since March, which centres on a 3.9% decline in approvals for newly constructed dwellings while loans for construction are broadly flat (-0.4%) over the period. 

Meanwhile, refinancing approvals have ripped to their highest level on record at 21,727 following increases of 11.2% and 29.2% in April and May respectively. 

Turning to the view at a state level, the summary table below provides the breakdown for housing finance commitments for both the owner-occupier and investor segments. The timing of the impact of the disruption has varied from state to state. In May, activity deteriorated at a much more rapid pace in New South Wales after relatively modest declines in April, while it rolled over in Victoria after both segments advanced in April. Queensland and Western Australia had seen very severe falls of around 18-19% for owner-occupiers and 30% for investors in April, though as the table shows these effects moderated in May. The declines recorded in South Australia in May were of similar magnitude to the month prior, and likewise for the owner-occupier segment in Tasmania, though its investor segment saw a much more modest fall compared to April (-24.8%). 

The chart below shows the values of owner-occupier commitments for each state.

Commitments to the investor segment for each state are shown in this next chart.

Housing Finance — May | Insights

After a relatively modest 4.8% decline in April, housing finance commitments weakened by their most in a single month on record in May (-11.6%). As the ABS pointed out in the previous release, April's data largely reflected loan applications submitted in March, so today's data for May provides an indication of the scale of the disruption that occurred as the nation went into lockdown. Higher frequency indicators have suggested that activity rebounded as restrictions were eased, though the situation is very fluid with lockdown returning in Melbourne and this could weigh on confidence more broadly if concerns (whether perceived or real) over the virus rise in the other states.