Australian housing finance up in April, unlikely to be sustained: Daniel Gradwell

EXPERT OBSERVER

The value of Australian housing finance commitments rose slightly in May, but not by enough to offset recent weakness.

The value of monthly approvals is more than five per cent lower than a year ago. Investors are the main driver of this weakness, edging down another 0.1% m/m, while the owner-occupier segment is performing better (+0.8% m/m). 

The fall in investor demand is clearly related to APRA’s macroprudential policies.

In 2015, the 10% speed limit on investor borrowing saw a sharp drop in the presence of investors, and the subsequent limit on interest only loans in 2017 has had a similar impact.

Even the removal of the 10% growth limit, announced at the end of April 2018, is unlikely to drive renewed strength.

As a result, the share of new lending going toward investors is at the lowest level in several years. 

The fall in investor borrowing is also seen in finance for the construction and purchase of new dwellings, which continues to fall.

This provides further evidence that we have moved past the peak in building approvals.

A central feature of our view on the housing market is that credit conditions continue to tighten through the remainder of 2018.

This is expected to result in further weakness in housing finance going forward, which will in turn weigh on housing prices and building approvals.

Daniel Gradwell is a Senior Economist at ANZ Research