Summary: Value of loan commitments down 8.2% in September; 18.5% lower than September 2021; market correction “has further to run”; further reductions in borrowing capacity, loan sizes “still to come”; value of owner-occupier loan approvals down 9.3%, investor approvals down 6.0%; number of home loan approvals down 7.9%.
The number and value of approvals began to noticeably increase after the RBA reduced its cash rate target in a series of cuts beginning in mid-2019, potentially ending the downtrend which had been in place since mid-2017. Figures from February through to May of 2020 provided an indication the downtrend was still intact but subsequent figures then pushed both back to elevated levels in 2021.
September’s housing finance figures have now been released and total loan approvals excluding refinancing decreased by 8.2% In dollar terms over the month, lower than the 3.0% fall which had been generally expected and below August’s -3.4%. On a year-on-year basis, total approvals excluding refinancing fell by 18.5%, down from the previous month’s comparable figure of -12.5%.
“Overall, while the September fall in housing finance approvals was larger than expected, both the headline move and the detail was broadly in line with the wider picture of a market correction that has further to run,” said Westpac senior economist Matthew Hassan.
Commonwealth Government bond yields rose on the day, especially at the short end of the yield curve. By the close of business, the 3-year ACGB yield had gained 9bps to 3.39% while 10-year and 20-year yields both finished 4bps higher at 3.82% and 4.18% respectively.
In the cash futures market, expectations regarding future rate rises firmed. At the end of the day, contracts implied the cash rate would rise from the current rate of 2.81% to average 2.995% in December and then increase to an average of 3.235% in February. May 2023 contracts implied a 3.80% average cash rate while August 2023 contracts implied 4.00%.
“Rate hikes are hitting housing lending sharply,” observed ANZ senior economist Adelaide Timbrell. “Our new forecast of 3.85% for the peak cash rate implies further reductions in both borrowing capacity and loan sizes are still to come.”
The total value of owner-occupier loan commitments excluding refinancing decreased by 9.3%, down from August’s -2.7%. On an annual basis, owner-occupier loan commitments were 19.9% lower than in September 2021, below August’s comparable figure of -15.1%.
The total value of investor commitments excluding refinancing arrangements fell by 6.0%. The decline followed a 4.8% fall in August, taking the growth rate over the previous 12 months to -15.3%, down from -6.4%.
The total number of loan commitments (excluding refinancing loans) to owner-occupiers fell by 7.9% to 23,557. The fall was a larger one than August’s 0.4% decline and the annual contraction rate accelerated from -19.2% to -21.9%.
