A clearer but mild turn for housing finance: Matthew Hassan

EXPERT OBSERVATON

Housing finance approvals came in better than expected for April but are showing clearer signs of a turn lower. The total value of new loans fell 4.8% in the month, a weak result but better than expected given disruptions from COVID-19 – we had been looking for a 10% pull back.

The detail showed similar sized declines across the value of owner occupier and investor approvals (–5% and –4.2% respectively) and in the number of owner occupier approvals (–4.4%mth). The latter is now down on a year ago but loans in value terms remain higher (reflecting the rebound in prices over the last year).

The ABS reported that housing loan approvals largely reflected applications submitted prior to COVID restrictions being introduced in March.

Results were very uneven by state, perhaps reflecting variations in lags between application and approval. Qld and WA saw much sharper pull backs (–22% and –24% respectively) compared to the milder decline in SA (–4.1%) and NSW (–2.4%), and a 4.5% gain in Vic that looks particularly out of step.

The lending figures also include non housing loans which are worth a mention. In particular, a steep fall in personal loan approvals (–24.8%) is more clearly directly related to COVID impacts. The detail here shows a slump in vehicle loans in line with the abrupt drop in sales and a very sharp decline in travel-related loans. Note that these loans have much shorter processing times than housing loans.

Overall, the housing finance data is yet to fully reflect the Coronavirus disruptions that hit the market through April-May. Many of these may have resulted in borrowers that had secured loans being unable to transact – as auctions and open homes were cancelled, and as properties were withdrawn. As such housing finance approvals may miss some of the extent of the disruption. However, the shock will clearly impact the flow of new applications. This may be taking longer to move through the pipeline, but a sharp drop off still looks likely in the months ahead.

Matthew Hassan is a senior economist with Westpac.