We just got a sign that investor lending for Australia's bonkers housing market is slowing

A builder works on a house under construction in Sydney. Photo: Getty Images

The number of home loans taken out by Australians plummeted in May.

According to the ABS, the number of loans taken out by owner occupiers slumped by 6.1% to 50,366. The decline was the greatest in percentage terms since January 2010. Mirroring the headline fall, the number of loans to purchase an established dwelling and for home construction slid by 6.2% and 8.3% respectively. Loans to purchase a new dwelling was the only component to register an increase, rising by 0.2% to 2,766.

In dollar terms home loan lending fell by 4.4% to $31.139 billion. Those to owner-occupiers slid by 5.3% to $18.103 billion while that for investment, crucially in terms of future monetary and housing policy in Australia, dropped 3.2% to 13.036 billion.

Interestingly, lending for housing investment to purchase an existing dwelling slumped by $447 million compared to a month earlier, the largest decline since May 2008.

While investment lending is still up strongly over the past year, some $24.4 billion to $138.1 billion, this is the first sign that measures to slow growth to this segment may be finally starting to work.

UBS economists George Tharenou and Scott Haslem, in a note following the release, suggest that while it is too early to put the decline down to tighter macroprudential policies implemented by APRA, if the trend continues it will allow greater scope for the RBA to lower interest rates further, if required.

“Overall, the trend in home loans growth has clearly slowed to now be flat this year, and May itself fell sharply m/m – despite the RBA’s rate cuts. So apart from confirming our view that credit growth has likely peaked, and that house price growth should also moderate, the more interesting issue is how much RBA/APRA macroprudential tightening is having a materially negative impact. For now it is probably still too early to definitively know the answer (given investors are still +19% y/y). But watch this space, because if loans continue to weaken ahead it would give the RBA more room to ease, albeit we still have the RBA on hold ahead, awaiting the next key signpost on CPI”.

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