March fall in housing finance unsurprising: ANZ

EXPERT OBSERVATION

The fall in housing finance in March is not surprising, given that we already knew that March was a weak month for the housing market. We will continue to watch developments in the availability of credit very closely.

Any further tightening in credit conditions could imply further weakness in the housing market, and would challenge our current view of mild house price growth by the end of the year.

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The value of Australian housing finance commitments fell heavily in March, with the investor segment driving the decline at -9% m/m. This is the weakest monthly result for investor borrowing since September 2015, when APRA’s macroprudential policy limiting lending to investors was in full effect.

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On the previous occasion, the owner-occupier segment offset much of the investor weakness, but that was not the case in March.

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The drop in investor borrowing means that investors only accounted for 42% of transactions nationwide – the lowest level since 2012. While this result predates APRA’s recent decision to remove the 10% ‘speed limit’ on investor borrowing, it is hard to see a re-acceleration in the investor segment with sentiment clearly subdued. Having said that, recent announcements from several banks have seen some cuts to investor mortgage rates, which could help ensure such a sharp drop in borrowing is not repeated.

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Elsewhere, the finance for new dwellings has started to trend lower, which suggests that the recent rise in building approvals will soon run out of steam. This won’t affect our construction outlook though, as a large backlog of work will still support activity this year. Finally, it looks like the flood of first home buyers, driven by New South Wales and Victorian stamp duty discounts, is past the peak.

Daniel Gradwell is a senior economist at ANZ.