Summary: Home loan approvals fall in number and value over May; fall larger than expected; May figures reflect full impact of pandemic; owner-occupier, investor loans both fall in dollar terms; pandemic’s effect expected to “linger”.
A very clear downtrend was evident in the monthly figures of both the number and value of home loan commitments through late-2017 to mid-2019. Then the RBA reduced its cash rate target in a series of cuts and both the number and value of mortgage approvals began to noticeably increase. Figures from February provided an indication the trend may have finished but the confirmation only really came through with the latest figures.
May’s housing finance figures have now been released and the total number of loan commitments (excluding refinancing loans) to owner-occupiers fell by 7.6%. The drop came after a 4.4% decrease in April and, on an annual basis, the rate of contraction accelerated from April’s figure of -1.2% to -8.0%.
“The COVID shock finally had its full impact on housing finance data,” said Westpac senior economist Matthew Hassan.
Despite the report, local Treasury bond yields increased moderately on the day, broadly following overnight movements in their US Treasury counterparts. By the end of the day, the 3-year ACGB yield had increased by 2bps to 0.30% while 10-year and 20-year yields had each gained 3bps to 0.92% and 1.53% respectively.
In dollar terms, total loan approvals excluding refinancing dropped by 11.6% over the month. The fall was greater than the expected 7% decline and a larger fall than April’s revised figure of -4.8%. On a year-on-year basis, total approvals excluding refinancing were still 1.8% higher, a much slower growth rate than the previous month’s comparable figure of +11.2%.
The total value of owner-occupier loan commitments excluding refinancing decreased by 10.2%, almost twice the size of April’s revised figure of -5.2%. On an annual basis, owner-occupier loan commitments were 7.3% higher than in May 2019, whereas April’s annual growth figure was 14.8%.