Australian housing finance May 2015: Matthew Hassan

GUEST OBSERVER

Australian housing finance approvals to owner occupiers fell sharply in May with the 6.1% fall coming below expectations of a 3% decline.

Weak industry data had indicated some downside risks to the month – these clearly materialised. 

The detail was also weak. New lending, ex refinance, recorded an even sharper 8.2% drop.

Construction-related approvals recorded a sharp fall as well, down 5.7%mth on a combined basis (i.e. approvals for construction and for the purchase of newly built dwellings). 

Owner occupier finance approvals declined across all states with falls (ex refi) ranging from –3.8%mth in Qld to –8.6%mth in WA.

The number of new finance approvals is down on year-ago levels in every state. 

Notably, the value of housing finance approvals to investors also declined in May, falling 3.2%mth. Although that still leaves lending in the segment up 19.4%yr, the tightening in lending criteria and APRA’s target of 10% growth in credit to the segment (i.e. total loans outstanding) means there will be further falls to come near term. 

The sharp fall in finance approvals in May reflects both the clear softening in buyer sentiment across owner-occupier segments since mid-2014 and the ‘macro-prudential’ measures aimed at containing investor lending.

Note however that the reading would have been unaffected by the RBA’s May rate cut which more timely auction market and price data suggests has driven some renewed momentum in housing markets through June-July.

Details 
Owner–occupiers (no.)    –6.1%mth, –1.9%yr  
– ex-financing (no.)        –8.2%mth, –10%yr

Construction of dwellings (no.)  –8.3%mth, –9.7%yr   
Purchase of new dwellings (no.)    0.3%mth, 3.4%yr                    

Value of loans:  
Owner-occupiers ($bn)      –5.3%mth, 8.1%yr
Investors ($bn)                –3.2%mth, 19.4%yr  
Total ($bn)                     –4.4%mth, 12.6%yr   

Strategy

For the AUD 

AUD was trading just above 0.7480 as the housing finance was released. The currency fell around 5 pips as the headline fell by 6.1%m/m v the 3.0% consensus. The data however was overshadowed by the opening of the Chinese stock exchanges. Markets are also focusing on continued risk around Greece and Fed Chair Yellen speaking. 

MATTHEW HASSAN is senior economist with Westpac.