Housing finance slips ahead of shutdown: Westpac's Matthew Hassan

EXPERT OBSERVER 

Housing finance came in softer than expected in Feb, the total value of approvals recording a 1.7% decline in the month against expectations of a modest further rise.

The detail was soft across most segments and is despite both price gains and turnover still holding up reasonably well in the month which pre-dated any meaningful impacts from the Coronavirus outbreak.

The detail on owner occuper loans suggests slower volumes were the main driver of the soft result with the number of loans to this segment down 2% but the value down only 1.7%.

The number of approvals is still up 4.9% since the low point in May while the total value is up 22.6% (the difference implying a large rise in average loan sizes consistent with both rising prices and the stronger rebound in activity in higher priced markets such as Sydney and Melbourne).

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Investor activity continues to be more subdued. The value of investor loans saw a slightly bigger decline in the months, down 1.9% with the value of approval up 6.3%yr compared to double digit growth for owner occupier loans.

Construction-related loans bucked the wider monthly decline, posting a 1.9% rise, likely supported at the margin but post-bushfire rebuilding activity.

Loans for the purchase of newly built dwellings fell sharply, down 8.9%mth, but were coming off very strong gains over the previous three months and are still up 29%yr (the ABS has identified some data quality concerns with this measure that are likely to see revisions in future relases).

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On a combined basis, the total value of loans was up 1.7%mth and 13.1%yr.

By state, weakness was concentrated in NSW (total value of loans –7.1%mth), SA (–7.2%mth) and, to a lesser extent, Vic (–2.1%mth).

Other states recorded gains, Qld +4.1%mth and WA+5.5%mth.

Overall, while the starting point is a touch softer than expected the main story is still the likely severe decline as coronavirus effects impact in coming months.

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Auction markets have already registered an abrupt slowdown as physical auctions have been banned outright (around half of auctions have been withdrawn prior, the remaining sales going via pre auction sales or online auction).

This segment only account for about 15% of all property sales, and the industry may do more to adapt to the situation in coming months.

Nevertheless, health concerns, social distancing restrictions and a deep economic shock will heavily impact the wider property market in coming months.