Covid-19 Impact Yet to Hit Lending

Housing loans fell 1.7 per cent in February, and while it marked the first fall in nine months the Australian Bureau of Statistics says the result was not due to the coronavirus pandemic.

Falls were recorded in both owner‑occupier loans and investor-loans for the month, “falling 1.7 per cent and 1.9 per cent respectively,” ABS chief economist Bruce Hockman said.

Hockman says February’s fall in the value of new loan commitments follows “considerable growth in the series from mid-2019 onwards” in Australia’s housing market, after rising slightly more than 20 per cent from 2019’s trough.

But any impact of the Covid-19 health crisis on new lending commitments was yet to be seen in the February ABS data, taken before the virus was declared a global pandemic.

Hockman said the reference period for lending indicators fell at a point where there was only a relatively low number of confirmed Covid-19 cases in Australia.

Recent market trends have become less relevant as we move into a “period of unprecedented uncertainty”, Corelogic’s Tim Lawless said this month, which is “likely to further erode household confidence”.

Restriction measures to slow the spread of Covid-19 virus have seen public open homes and public auctions cancelled. While online auctions continue, auction clearance rates have dropped by 45 per cent.

Loans for the construction of dwellings rose for the third straight month, recording an increase of 2 per cent.

As construction is deemed an essential sector, BIS Oxford Economics economist Maree Kilroy said that demand for new housing will be “significantly weaker as the churn of dwellings seizes in the June quarter and households put on hold stage of life decisions”.

Price softening in housing market

While daily dwelling price data is still ticking higher Commsec senior economist Belinda Allen says the bank expects house prices to soften in coming months.

“The retreat in lending in February suggests the pace of growth seen in dwelling prices could have been starting to soften demand for housing finance. Covid‑19 will of course dramatically change the landscape,” Allen said.

“There is also significant uncertainty over the rental market as the ability to evict tenants facing hardship is reassessed.

Allen expects this will lead to “a large slowdown in investor lending while a significantly reduced turnover in the housing market could delay owner‑occupiers from buying or selling”.

The lending indicators, released monthly by the ABS, with figures on new housing, personal, commercial and lease finance commitments reveal that first-home buyers accounted for just over one in every three loans taken out in February.

This was largely expected as a result of the First Home Buyer Deposit scheme, with a pick up recorded in New South Wales and Queensland.

The number of new loan commitments for owner-occupier first home buyers rose 0.4 per cent in February, following January’s rise of 0.5 per cent.

The number of owner-occupier first home buyer loan commitments were up 19.4 per cent on February last year, with increases for all but two months over the year.

And the value of new loan commitments for fixed term personal finance fell 0.5 per cent in February following a 2.1 per cent rise in January.