Australian housing finance down a further 2.5% in October

Australian housing finance commitments declined by 2.5% in October to be down by around 9% since the middle of the year. The Delta lockdowns and fading tailwinds from stimulus measures have weighed on activity over the period. As owner-occupier commitments continue to retrace from cycle highs, investors are advancing with commitments to the segment pressing record levels. 

Housing Finance — October | By the numbers

• Housing finance commitments ($ value, ex-refinancing) declined by 2.5%m/m in October to $29.6bn (prior: -1.4%) against expectations for a 2% rise. Growth over the year eased to 32.2% from 35.5%.  
• Owner-occupier commitments were down 4.1% in the month to $19.8bn (prior: -2.7%) for an annual rise of 15.1% (from 20.8%).  
• Investment commitments lifted by 1.1%m/m to $9.7bn, with annual growth steepening from 83.2% to 89.6%.
• Total refinancing activity was a touch softer falling by 0.4% in October to $16.1bn (prior: -9.1%) but is up by a third over the year.  

Housing Finance — October | The details 

Housing finance commitments were down for a third month running with October's 2.5% fall following declines of 4.3% in August and 1.4% in September. A range of stimulus measures including construction subsidies, incentives for first home buyers and low interest rates in a backdrop of rising housing prices set up a cracking pace in commitments from mid 2020. This is now in the process of unwinding as some of the stimulus measures have ended. 

The main macro theme playing out is that owner-occupiers are pulling back from the market while investor activity is on the rise. As the chart below shows, the slowing in the owner-occupier segment is broad based across upgraders (-3.7%mth), first home buyers (-4.8%mth) and in the construction-related area (-7.1%). The ending of construction subsidies and the strong run-up in housing prices stretching affordability are key factors in the slowdown. 

The approvals data (counting the number of loans written by lenders) is mirroring the trends seen in commitments.  

Investor commitments lifted to $9.7bn in October, their highest level since April 2015. The rise in housing prices, tightening conditions in some key rental markets and low interest rates are supportive fundamentals for the segment. 

Across the states, the key detail was a sharp decline in owner-occupier commitments in New South Wales (-8.4%m/m). First home buyer commitments in the state were also 5.3% lower. This may be reflecting volatility associated with the Delta lockdown. Victoria, also in lockdown, fared better in October with owner-occupier commitments up 2.6%, though they had fallen by 17.1% over the previous two months on the impact of restrictions.  

Activity in the refinancing market broadly held at the elevated levels seen in the previous month at around $16.1bn. The decline in official interest rates and the introduction of the RBA's Term Funding Facility drove a run-up in refinancing since March of last year as borrowers sought out lower rates when fixed-rate periods on their mortgages came to an end.  

Housing Finance — October | Insights

Lockdown effects and the withdrawal of stimulus measures weighed on housing finance commitments in the month, though investor commitments remain on the rise with the backdrop of supportive fundamentals. Contributing significantly to the slowdown in the owner-occupier activity is a cooling first home buyer segment. Aside from the withdrawal of stimulus, with housing prices nationally up 22.2% over the year to November according to the latest release from CoreLogic, affordability has come under pressure.