Australian housing finance steadies in July

Australian housing finance commitments were broadly flat in July but remained at very elevated levels. Refinancing surged to record highs in the month with activity on the rise in both the owner-occupier and investor segments as borrowers move to lower interest rates on offer, reflecting the RBA's monetary policy support.  

Housing Finance — July | By the numbers

• Housing finance commitments ($ value, ex-refinancing) were steady in July (0.2%), coming in close to estimates for a -0.2% result (prior: -1.6%m/m). The level stayed elevated at $32.1bn to be up 68.2%yr. 
• Owner-occupier commitments eased by 0.4% to $22.8bn, with annual growth slowing to 58.3% from 75.9%. 
• Investor commitments increased by 1.8% to $9.4bn — a high going back to April 2015 — with growth over the year running at 98.7%. 
• Refinancing activity across both the owner-occupier (4.9%) and investor segments (8.3%) advanced, taking the total level to a record high at $17.2bn in July (59.9%yr). 

Housing Finance — July | The details 

Housing finance commitments may be starting to level out as July's broadly flat outcome of 0.2% followed the 1.6% fall in June. Commitments remained at a very elevated level just above $32bn but may have seen the highs for the cycle given the underlying developments and the current lockdown disruptions. Owner-occupier commitments were softer in the July month (-0.4%) at $22.7bn with upgraders (0.8%m/m) moderating the unwind in the construction-related segment (-5.2%m/m) on the closure of the HomeBuilder grants scheme and as increasing affordability constraints from rising housing prices weighs on the first home buyer segment (-7.6%m/m). 

In the investor segment, the momentum in its surge has eased off slightly with the gains moderating to a 1.8% rise in July after June's 0.7% lift. However, at $9.4bn, borrower-accepted commitments to investors were at their highest in more than 6 years. 

Meanwhile, refinancing activity had lifted to its highest level on record in July at $17.7bn with many borrowers switching to lower rates on offer for fixed rate loans. The RBA's yield target at the 3-year segment and the Term Funding Facility have been key supports to this. Refinancing to owner-occupiers was up 4.9% to $11.4bn and lifted 8.3% for investors to $5.9bn. 

Turning to the approvals data, we see the effects of the end of the HomeBuilder scheme continuing, with construction-related approvals falling by another 8.4% in the month. First Home Buyer approvals were retracing from their peak at the start of the year. Approvals to upgraders were elevated but eased off their high reached last month. 

Developments at the state level are summarised in the table below. Investors shifted up a gear in New South Wales and Queensland in July. It remains to be seen the effects of the ongoing lockdown on activity in the former, where the owner-occupier segment is also very robust. First home buyer activity was weaker across the nation in response to the strong growth in housing prices that was likely squeezing this segment.    

Housing Finance — July | Insights

It remains a mixed picture for housing finance ahead of the likely impacts associated with lockdowns. The owner-occupier segment is being driven by upgraders, though activity from first home buyers is rolling over and is unwinding in the construction-related area post HomeBuilder. Meanwhile, the investor segment retains very strong momentum on supportive fundamentals from rising housing prices and tightening rental markets. Reflecting the support from the RBA's accommodative monetary policy settings, refinancing activity is surging.