Housing market adjusts independent of recent lending changes

Written by Doug Ross in Finance on April 12, 2017

With the release of Australian Bureau of Statistics (ABS) finance figures yesterday, it has been revealed that despite lending to Australian housing investors having its largest decline in more than a year, in trend terms the number of owner-occupied finance commitments increased by .3 per cent in February 2017.

“Whilst the proportion of first home buyers, as part of the total owner-occupied housing finance commitments, decreased to 13.3 per cent from 13.4 per cent in January, the number of first home buyer commitments increased by 7.5 per cent,” said REIA President Malcolm Gunning.

However, this increase of first home buyer commitments is worth considering within the context that first home buyers accounted for 26.5 per cent of established property sales, their lowest level since Q3 of 2015, according to the NAB.

The moderation of investor financing but increase to owner-occupied financing precedes last week’s actions by the Australian Prudential Regulation Authority (APRA) to strengthen macroprudential policies around limiting interest-only lending to 30 per cent of total new residential mortgage lending.

The figures also run independent of, but coincide with, the four big bank’s recent out-of-cycle mortgage rate increases, as well as the RBA’s decision to maintain its record low 1.5% interest rate for April.

“If refinancing is excluded, in trend terms, the number of owner-occupied finance commitments increased by .8 per cent following a rise of 1.1 per cent in January,” continued Mr Gunning.

“In trend terms, the number of established dwellings purchase commitments increased by 0.4% while new dwelling construction decreased by 0.1% and the purchase of new dwellings remained flat.”

These increases to owner-occupied finance commitments were seen in all states except Western Australia, Queensland and Tasmania, with the ACT recording the largest increase of 1.0 per cent.

The effects of the recent mortgage rate increases and supervisory restrictions by APRA remain to be seen, especially on investment figures, considering the decrease in value of investment housing commitments by 5.9 per cent in seasonally adjusted terms. Mr Gunning maintained that vigilance was required to monitor the effects of these recent lending changes.

“The February figures show that the market is adjusting and we will need to closely monitor the cumulative impact of recent actions by the regulators and banks to ensure that they don’t threaten economic growth.”