Australian housing finance commitments contracted by 8.2% in September as owner-occupier lending posted a record fall and investor lending retraced further from its March peak. Housing market activity is weakening in response to the accelerated RBA rate hiking cycle, which continued yesterday with a further 25bps increase.
Housing Finance — September | By the numbers
- Housing finance commitments (ex-refinancing) were down 8.2% in September at $25.1bn on the back of a 2.7% decline in August; markets expected a fall of around 3%. Commitments have declined by 18.5% over the year.
- Owner-occupier commitments declined by 9.3%, the largest month-to-month fall since these records commenced in 2002, sliding to $16.8bn (-19.9%yr).
- Investor commitments contracted by 6%m/m to $8.3bn, down 15.3% over the year.
- Refinancing came off a record high in August after falling by 8.2% in September to $17.3bn, but the level is still 7.4% higher than a year ago.
Housing Finance — September | The details
Housing finance commitments were down for the fourth month running reflecting the sensitivity of housing market activity to the RBA's rate hiking cycle. Total commitments have retraced to levels last seen at the end of 2020 at around $25bn.
Over the course of the third quarter, commitments fell by 15% making this the steepest quarter-to-quarter decline since 2008. Owner-occupier commitments fell by 12.9%q/q, contributing a little more than half of the decline in total commitments in the quarter. Investor commitments were down 19.1%q/q.
In the owner-occupier segment, the weakness has been broad based coming across upgraders (-14.3%q/q), first home buyers (-12.9%q/q), the construction-related segment (-7.7%) and alterations (-12.8%q/q). Those declines are broadly in line with fewer loans being written to first home buyers (-11.7%q/q) and for construction-related purposes (-8.1%q/q). However, approvals to upgraders were down by 9.6%q/q compared to a much larger fall in commitments (-14.3%), the latter factoring in the effects of reduced loan sizes and declines in housing prices.
Lending to the investor segment was $8.3bn in September, down almost 30% from the peak in March. In Q3, declines were of a similar magnitude in New South Wales -18.5%, Victoria -18.3% and Queensland -17.6%; Tasmania saw the largest fall (-21.3%) while the declines were relatively modest in South Australia (-8.3%) and Western Australia (-6.6%).
Refinancing activity declined in September but remains at elevated levels. Competition amongst lenders in a rising interest rate environment has been a driving factor. Refiancing should remain at elevated levels as more fixed rate periods on mortages mature.
Housing Finance — September | Insights
Housing market conditions continue to cool in response to the RBA's rate hiking cycle. Tighter financing conditions are leading to a reduction in lending activity and falls in housing prices, as reported by CoreLogic yesterday. From the inflation viewpoint, lending for construction-related purposes (including new builds and off the plan sales) has unwound to mid-2020 levels, prior to the introduction of construction subsidies. Although the number of homes is at a record high, commencents are declining and today's reports shows the flow of lending in now greatly reduced. Alongside additional rate hikes and further falls in housing prices, these factors point to a material easing in the inflationary pulse coming from new home building.
