- Lending to Australian households plunged in December, driven by another steep decline in the value of housing finance.
- The value of new lending to owner-occupiers slumped by 6.4% and 4.6% respectively from a month earlier.
- New lending for housing investment cratered to levels not seen since November 2011.
- The decline primarily reflects the impact of tighter lending standards and reduced demand for finance at a time when home prices are falling.
- The Commonwealth Bank says continued weakness in new housing finance points to further declines in home prices ahead.
Lending to Australian households plunged in December, driven by steep declines in housing finance.
According to the Australian Bureau of Statistics (ABS), loans to households fell by 4.4% to $32.835 billion after seasonal adjustments, leaving the decline over the year at 13.2%.
“Large falls in the value of lending for owner occupier dwellings and investment dwellings drove the fall in lending commitments to households,” said Bruce Hockman, Chief Economist at the ABS.
“The slowdown in lending for investor dwellings this month continues the steady decline over the past two years, with the value of new investor loan commitments down around 40% from the peak at the start of 2017.
“The slowdown in lending for owner occupier dwellings is more recent, with falls concentrated in the last half of 2018.”
Excluding refinancing, lending to owner-occupier borrowers skidded by 6.4% during the month, outpacing another steep decline in finance to investors which fell by 4.6%.
At $12.5 billion, the value of new owner-occupier lending now sits at the lowest level since May 2015 having fallen by 16.2% over the past 12 months.
For investors, the value of lending in December was the smallest since November 2011. From December last year, lending for investment has plunged by 27.8%.
Excluding refinancing of existing loan facilities, the ABS said the value of lending to owner-occupiers fell in most parts the country.
In the most populous states, lending to this cohort fell by 6.1% in New South Wales, 6.6% in Victoria, 9.9% in Queensland and 6.3% in Western Australia.
Declines in the other states and territories ranged from 18.3% in the Northern Territory to 1% in South Australia.
Tasmania was the only state to register an increase with the value of new owner-occupier finance lifting by 4.2% from a month earlier.
Mirroring the decline in the value of owner-occupier finance, total loans to this group also fell heavily during the month.
After seasonal adjustments, total loans to owner-occupiers slumped by 6.1% to 48,690 from November, well below the 2% decline expected by financial markets.
Excluding refinancing of existing facilities, new loans fell by an even sharper 8.2% to 32,102, reflecting declines across all categories, including for first home buyers.
Refinancing of owner occupier loans fell by a smaller 1.7% to 16,587 after seasonal adjustments.
The broad-based falls in lending reflect a variety of factors, including tighter home loan lending standards, reduced investment from overseas buyers, possible changes to to the tax treatment of housing in the upcoming federal election along with reduced demand for finance given widespread expectations that home prices will continue to fall for some time yet, extending the national downturn that began in late 2017.
“The slowing in demand from both owner-occupiers and investors reinforces weaker consumer confidence in the property market and confirms the slowing is across the board, not just among investors but also upgraders and first home buyers,” said Robert Mellor, Managing Director of BIS Oxford Economics, in response to the December report.
Belinda Allen, Senior Economist at the Commonwealth Bank, agrees that sentiment, rather than lending restrictions, is now the primary driver of the decline in housing finance.
“Reduced supply of credit for investors kicked off the falls in housing finance and dwelling prices. Owner occupiers are now reducing demand for credit as they reassess the price outlook,” she said.
“The RBA noted liaison with major banks and mortgage brokers that significantly fewer loan applications had been received over the past year. Most loans are still being approved, albeit taking longer. But it is the demand for loans that is now driving the weakness in housing finance.
“Sentiment around the property market is crucial.”
While gauging sentiment among millions of Australians can be difficult at the best of times, Allen says the continued decline in housing finance points to further declines in property prices ahead.
“The falls should remain concentrated in Sydney and Melbourne, the two cities where investor activity was the strongest,” she says.
“We expect a further 5% drop in Sydney prices taking the peak to trough decline to 15%. We expect a peak to trough fall in Melbourne of around 13%.”