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Australia Housing Finance Dips on Investors, Smaller Loans

Owner-occupiers (no.) –0.9%mth, –7.9%yr (f/c –1.5%). Investors (value): –4.5%mth, –23.4%yr. Total ex own occ. refi (value): –2.9%mth, –16%yr

Housing finance approvals softened in November with weakness concentrated in investor loans and the value, as opposed to the number, of owner occupier loans.

The headline number of owner occupier loans held up a little better than expected in the month, recording a 0.9% decline vs consensus and Westpac forecasts of a 1.5% fall. Ex-refi, the number of approvals was down only 0.6%mth. Despite this slightly better than expected complexion to the latest month, weakness is still clear with the number of owner occupier approvals ex refi down 10%yr.

The detail points to weakening investor activity and shrinking average loan sizes as the main driver of weakness late last year – the latter likely reflecting reductions in borrowing capacity following a tightening in bank lending assessments. Notably, the six months to Nov saw a 5.8% drop in the value of owner occupier loans but just a 1.5% decline in the number of loans, the difference being the implied average loan size.

The value of investor loans dropped 4.5% in Nov to be down 23.4%yr to the lowest level since June 2013.

The combined total value of housing finance approvals including investors but excluding owner occupier refi, was down 2.9%, reversing the previous month’s 2.9% rise to be down 16%yr.

Construction finance approvals declined 2.0% to be down 8.9%yr. Approvals for the purchase of newly built dwellings rose 3.4% but were coming off a 3yr low, down 18.7%yr.

The number of owner occupier loan approvals showed mixed moves across states, down in NSW (–1%mth) and Qld (–1.3%mth) but up in Vic (+1.9%mth), SA (+0.3%mth) and WA (+3%mth). All states have seen declines over the last 12mths with NSW, Vic and Qld recording the biggest falls, all around 10%yr. The aforementioned decline in average loan sizes over the last six months has been across all major states but more pronounced in NSW and Vic.

Australia’s housing sector posted a weak finish to 2018 with auction clearance rates near historic lows and prices sliding into the close. While the finance data does not add much to this picture it suggests a further weakening in investor activity and tightening lending standards from banks were key drivers late in the year. Looking ahead, the holiday low season means there will be little or no reliable new information on housing until the market re-opens in mid-Feb.

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