The decline in Australian housing finance commitments has pushed past the one-year mark following a 0.9% fall in February. The value of commitments is now down by more than 34% from the cycle high at the beginning of 2022. There are tentative signs that the downturn may be losing some momentum.
Housing Finance — February | By the numbers
- Housing finance commitments (ex-refinancing) fell by 0.9% in February (vs -1.8% expected) to $22.6bn, a decline of almost 31% over the year.
- Owner-occupier commitments slid 1.2%m/m to $15bn (-30%yr), making a new low back to the midst of the pandemic in 2020.
- Investor lending was 0.5%m/m lower at $7.6bn (-32.6%yr), its lowest since February-2021.
- Refinancing hit a new record high after advancing by 2.7%m/m to $19.9bn, the level surging by 22.6% from a year earlier spurred on by the RBA's rate hiking cycle.
Housing Finance — February | The details
Housing finance commitments fell for the 13th month in succession after a 0.9% decline was posted in February. That widened the peak-to-trough fall over the period since January-22 to 33.2%. The downturn may be losing some steam; February's decline was the slowest seen since May-22 and compares to an average month-on-month fall of 4.2% over the back half of last year.
Lending in the owner-occupier segment is down by 34.4% from the cycle peak in May-21. A 1.2% fall in February notched its 9th successive decline. Declines across the segment were posted for upgraders (-0.5%) and in the construction-related (-4.4%) and alterations (-2.1%) areas; however, first home buyers went against the trend to record its first month-on-month rise (0.9%) since August last year.
While the value of construction-related lending has retraced to its lowest since August 2019, the rises in materials and labour costs conceal the extent of the underlying weakness in demand for lending associated with new home building. In February, construction-related loan volumes (4,267) plunged to their lowest level since late 2008, with loans for new home building hitting a record low since the inception of the series in 2002 (2,732) and loans to purchase a newly built home (1,535) at a 9½-year low.
In the investor segment, lending contracted by 0.5% in the month - its 11th consecutive fall - to be down by 32.8% from the record high in March-22. As with the owner-occupier segment, the pace of the slide slowed, with February's fall being the smallest decline seen over the course of the downturn so far.
Refinancing activity has surged as mortgage holders have shopped around for lower rates with the RBA hiking rates rapidly. Total refinancing has risen by almost 23% over the past year and was at a record high of $19.9bn in February alone. Both owner-occupier ($13.6bn) and investor refinancing ($6.3bn) are at record levels.
Housing Finance — February | Insights
The downturn in housing finance commitments continued in February, though this most recent decline was the slowest seen in many months. That may be an early sign that the downturn is starting to moderate. This morning, CoreLogic reported a 0.6% gain in national housing prices in March, its first rise since April-22, a month that marked the peak in the price cycle.
According to CoreLogic, prices nationally are down by 8.5% from the peak. That is a modest pace of decline relative to the fall in commitments, which likely reflects the pressures in the housing market around tight supply, particularly in the major capital cities. The constraints impacting the construction sector throughout the Covid period have been a major headwind to bringing new homes forward. Longer-term, the plunge in lending for new home building reported today points to an ongoing challenge to keep pace with population growth.