Australian housing finance commitments reset to a new record high at $38.2bn in December, surpassing the peak of the cycle reached in May. The resumption of activity in New South Wales and Victoria that was delayed during the Delta lockdowns has driven the rebound seen over the final two months of 2021. Over the second half of the year, investor activity accelerated to take up the running from the owner-occupier segment following a very strong period of rising housing prices and the withdrawal of construction stimulus.
Housing Finance — December | By the numbers
- Housing finance commitments ($ value, ex-refinancing) surprised to the upside of expectations (-0.4%) for the second month running with a 4.4% rise posted in December following the 6.3% rebound in November. This took commitments to a record high at $32.8bn to be up by 26.5% over the year.
- Owner-occupier commitments advanced by 5.3%m/m to $22.5bn (12.4%yr), which came on the back of a 7.6% rise in November.
- Investment commitments extended their record high with a 2.4% rise taking the monthly aggregate to $10.3bn (73.9%yr).
- Refinancing activity eased by a further 0.6% in December but remains elevated at $15.6bn; a rise of 39.5% on year-ago levels.
Housing Finance — December | The details
The driving factor behind this rebound has been reopenings in New South Wales and Victoria after restrictions curbed activity in these housing markets during the Delta lockdowns. Broad-based gains were posted in these two states in December, with owner-occupier commitments up by 3% in NSW and 5.2% in Vic, supported by rising activity from first home buyers (NSW 2.4% and Vic 3.4%); increases in the investor segment were 1.1% in NSW and 3.4% in Vic.
Taking a step back, the main theme that played out over the second half of the year was the shift from owner-occupiers to investors as the driver of the cycle. Commitments to owner-occupiers fell by 1.7% in Q4 after contracting by 6.6% in Q3. This compares to increases in investor commitments of 7.9% in Q3 and 6.0% in Q4. Whereas rising housing prices have become a headwind to owner-occupiers (and first home buyers in particular) due to affordability pressures they have been a tailwind for investors, as have improving rental market conditions.
Looking at the approvals data highlights the effect of rising housing prices. While the nominal value of commitments is at a new record high, the volume of loan approvals made to the owner-occupier segment remains well off their early 2021 peaks when the HomeBuilder scheme and first home buyer incentives were supporting demand for loans. However, the unwind in construction-related approvals may be starting to settle. Approvals of this type were up for a second consecutive month in December (2.7%) and are just above the highs seen in the previous cycle in 2017-18.
Refinancing fell for a 4th month running, down 0.6% in December. While refinancing to the owner-occupier segment increased by 1.4% this was offset by a 4.3% decline in investor refinancing. The chart below indicates we are past the peak in refinancing, but in a low-interest rate environment activity is still at historically elevated levels.
Housing Finance — December | Insights
The extent of the rebound in housing finance seen over November and December has taken many by surprise. The Delta lockdowns look to have been more disruptive to the nation's two largest housing markets in Sydney and Melbourne than previously thought. While now at a record level, housing finance should trend lower over the course of 2022 reflecting affordability constraints, the absence of construction stimulus, and a shift to less supportive monetary policy.