Australian housing finance fell for the first time in 4 months in May (-1.7% vs +1.8% expected), but the value of commitments ($28.8bn) was still up by 18% compared to 12 months ago. Lending to both major segments moderated in the latest month: owner-occupiers -2% and investors -1.3%, while refinancing activity continues to stabilise. The May report comes against the run of play where fundamentals in the housing market have driven up housing prices and seen lending rise.
May's 1.7% decline in housing finance commitments came after 3 months of accelerated gains, rising by a cumulative 11.6% over February-April. This is also a very modest fall in the context of the broader upswing underway, with commitments up 18% over the past year and 23.9% above the cycle low in January 2023. The fundamentals of tight supply and strong demand associated with population growth are understood to have outweighed the effect of higher interest rates, resulting in rising housing prices and with it increased lending. Last week, CoreLogic reported that the national median house price lifted by 8% over the year to June to just over $790k.
Owner-occupier commitments posted a 2% decline in May to ease to $18.1bn (12.2%yr). The declines were broad based across the segment: upgraders -2.2%, construction-related -2.6% and first home buyers -2.9%; however, lending for alterations was up 8.7% to be up nearly 70% on its level from 12 months earlier. The declines in lending were matched by falls in loan volumes: upgraders -1.2%, construction-related -3.3% and first home buyers -3.3%.
Commitments to the investor segment were down a modest 1.3% in the month to come in at $10.7bn. Since hitting their trough in March 2023, lending has risen in 11 of the past 14 months to be up by 37.1% over the period as increasing rents and housing prices have encouraged investors.
Lending to investors has risen sharply in most states over the past year, with Queensland recently overtaking Victoria in second place in terms of the highest value of monthly commitments, behind New South Wales.
Refinancing was little changed in May, continuing to stablise following the run-up in activity prompted by the reset of fixed-rate mortgages to higher variable rates. Owner-occupier refinacing has retraced to levels seen in 2021, prior to the RBA's tightening cycle.
