Home Loans Post Biggest Fall Since 2015

New housing finance approvals fell 4.8 per cent in April, the sharpest month-on month decline since 2015, but a milder fall to the 10 per cent pull-back some economists had tipped.

New loans to owner-occupiers declined 5 per cent in April, while lending to investors, which has been falling since February, declined 4.2 per cent, according to Australian Bureau of Statistics figures released Wednesday.

While this was a smaller drop than expected by the market, senior ANZ economists Adelaide Timbrell and David Plank expect house lending to be soft in the period ahead, as income pandemic-related disruptions erode both borrowing capacity and the risk appetite of households.

“We expect the weakness in finance to flow into lower house prices and a deteriorating construction outlook, only offset slightly by the homebuilder stimulus,” Timbrell said.

Figures show refinancing was up, with a record $7.9 billion in home loans refinanced in April.

CommSec chief economist Craig James says this figure was up by 50 per cent in a year.

“One part of the home finance market that has been going gangbusters is refinancing of loans,” James said.

“Home buyers have taken advantage of super-low rates to shore up their finances.”

The Bureau of Statistics said April’s figures largely reflect loan applications submitted in March before major Covid-related restrictions introduced.

Following weak turnover, BIS Oxford Economics economist Maree Kilroy says mortgage approvals are expected to contract further in May.

“The easing of restrictions on live auctions and open house inspections will see new housing loans gradually recover over the subsequent months,” Kilroy said.

“The recently announced Home Builder program will provide material support for new construction loans, but this will not be evident until the end of 2020.”

Lending indicators is released monthly by the ABS, containing figures on new housing, personal, commercial and lease finance commitments.

How will the housing market hold up?

UBS economists upgraded their price forecasts for Australia’s housing market on Friday, with fresh predictions home prices could fall by between 5 and 10 per cent over the next year, an upgrade from its previous forecast of at least a 10 per cent drop.

James added that Australia's home prices aren’t sliding and interest rates are at a record low.

“The job market will be fundamental to prospects but the good news is that federal treasury is now looking at an 8 per cent peak for the jobless rate rather than 10 per cent,” he said.

“The other area to watch is the drying up of in-bound migration, a factor that will serve to restrain home purchase demand.”

Recent Corelogic data shows that capital city home prices have eased by 0.4 per cent over the past month.