Australia: Housing finance approvals remain firm – Westpac

Australia’s August housing finance approvals came in slightly better than expected, the detail around investor loans in particular, points out Matthew Hassan, Economist at Westpac.

Key Quotes

“The number of owner occupier loans rose 1% vs expectations of a 0.5% gain. Approvals ex refi were flat. The value of housing finance approvals to investors posted a surprisingly strong 4.3% gain, more than reversing July’s pull back to be up 6.5%yr.”

“The result comes despite more evidence of a significant slowdown in Australia's residential property markets and 'macro prudential' measures from regulators in late March, the main component being a 30% cap on the share of 'interest only' loans. This and related increases in interest rates on these loans and on investor loans were expected to have had a significant dampening effect on investor activity, with some indirect boost to owner occupier loans. Investor loan approvals have instead held up, slipping only 1.1% from its March level. An important footnote here is that the investor loan figures in this release include refinancing – hence approvals may be being supported by borrowers switching from 'interest only' to standard 'principal and interest' loans. Our back of the envelope estimates suggest a large refi flow could easily account for over 10% of monthly investor loan approvals by value.”

“The detail on owner occupier approvals showed a decline in construction-related owner occupier approvals (–2.4%mth) reversing some of the strong gains in this segment in recent months this segment is still up 13.3%yr. Approvals for purchases of newly built dwellings continued to firm, up 1.5%mth, 23.2%yr – this segment includes settlement of 'off the plan' purchases of apartments.”

“First home buyer approvals continue to strengthen, rising 4%mth to be up 40%yr although the segment is coming off a very low base. All the major south eastern states have increased assistance to first home buyers in recent months.”

“The state breakdown continues to show strong gains in owner occupier approvals in NSW (+3.8%mth, +25.5%yr); Vic (down 0.2%mth but up 24.7%yr), more moderate growth for Qld (–0.7%mth, +6.6%yr), flat conditions in SA (+0.4%mth, +0.6%yr) and notable lift in WA (+2.1%mth, +5.3%yr).”

“Overall, the total value of loans rose 1.9%mth to be up 12.3%yr. This is in notable contrast to other market measures – auction clearance rates, turnover and prices – which point to a material slowdown in residential activity along the lines of that seen in 2015. The divergence between market conditions and housing finance may be an indirect indication that weaker foreign buyer demand (not captured by the housing finance data) accounts for a significant part of the slowdown in 2017.”