Housing finance falls as correction continues

Housing finance fell in August for both owner-occupied housing and investment loans, which industry players say suggests an ongoing correction in the housing market.

The latest Housing Finance data showed that in seasonally adjusted terms there was a drop of 2.1% in loans approved.

The data also showed that the value of loans approved dropped over the month prior, again by 2.1%.

Finance for the construction of new dwellings dropped the most significantly, seeing a 6.2% fall.

This data was supported by CoreLogic’s Hedonic Home Value Index, which revealed that national dwelling values fell 0.3% in August 2018, led by declines of 0.3% and 0.6% in Sydney and Melbourne respectively.

CEO of Mortgage Choice, Susan Mitchell, said, “Indeed we have seen the number of dwelling commitments fall by more than 10% in the last 12 months as the market has undergone a correction since peaking this time last year.

“A number of factors have compounded, placing downwards pressure on home loan demand such as historically high house prices and tightened lending standards which have led to an increase in the cost of borrowing on some loan products.

“This ultimately has an impact on consumer confidence and the level of borrowing in the housing market, however, demand is relatively high by long-term standards.”

Investor loans also saw a drop in August. Over the year prior, the value of housing loans to investors was down in seven of the eight states and territories.

Shane Garrett, chief economist of Master Builders Australia, said, “This is partly a response to the heavier restrictions imposed by APRA as well as the fact that market conditions have moderated compared with two years ago.

“In cities like Sydney and Melbourne, investor engagement with the market is a crucial vehicle for delivering the housing needs of the strongly growing work forces locally - and in keeping these economies expanding.

“Home building activity is currently struggling in other parts of Australia like WA, SA and the NT. Restrictions on lending to investors is adding unnecessarily to the pain in these markets.”

Over the year to August 2018, the value of investor lending in Tasmania rose by 8.2% compared with 12 months earlier.

Garrett added, “Over the year to August, Tasmania was the only market to experience an increase in lending to housing investors.

“The increase in investor involvement in Tasmania’s housing market over the past year is welcome. Hobart is now the fastest growing city for rental prices and has the lowest rental vacancy rate in the country.

“The increase in investor activity means that more dwellings are coming onto the rental market – exactly what’s needed.”