Summary: Value of loan commitments up 4.8% in April, more than expected; 24.6% higher than April 2023; Westpac: rising dwelling prices a tailwind for housing finance activity; ACGB yields down; rate-cut expectations firm; Westpac: tax cuts may provide boost as borrowing capacity expands but stretched affordability remains a drag; value of owner-occupier loan approvals up 4.3%; value of investor approvals up 5.6%; number of owner-occupier home loan approvals up 3.0%.
The number and value of home-loan 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 record highs in 2021. After a considerable pullback in 2022 both the value and number of approved loans resumed rising in 2023.
April’s housing finance figures have now been released and total loan approvals excluding refinancing increased by 4.8% In dollar terms over the month, more than the 1.5% rise which had been generally expected and up from March’s 3.8% increase after revisions. On a year-on-year basis, total approvals excluding refinancing were 24.6% higher than April 2023, up from the previous month’s comparable figure of 18.9%.
“A broad upswing in dwelling prices nationally remains a structural tailwind for housing finance activity,” said Westpac senior economist Jameson Coombs.
Commonwealth Government bond yields fell modestly on the day, although not quite as much as the falls of US Treasury yields on Wednesday night (AEST). By the close of business, 3-year and 10-year ACGB yields had both lost 2bps to 3.91% and 4.24% respectively while the 20-year yield finished 1bp lower at 4.55%.
Expectations regarding rate cuts in the next twelve months firmed by the end of the day. In the cash futures market, contracts implied the cash rate would remain close to the current rate for the next few months and average 4.315% through June, 4.31% in July and 4.32% in August. However, November contracts implied 4.285%, February 2025 contracts implied 4.215% while May 2025 contracts implied 4.105%, 22bps less than the current cash rate.
“Stage 3 tax cuts may provide a boost to activity as borrowing capacity expands,” Coombs added. “However, stretched affordability will remain a drag and is likely to limit the potential upside, noting the high inflation will also be impacting benchmarks used to assess loan serviceability.”
The total value of owner-occupier loan commitments excluding refinancing increased by 4.3%, up from March’s 3.5%. On an annual basis, owner-occupier loan commitments were 18.7% higher than in April 2023, up from March’s comparable figure of 12.5%.
The total value of investor commitments excluding refinancing increased by 5.6%. The rise follows a 4.4% increase in March, taking the growth rate over the previous 12 months from 31.8% to 36.1%.
The total number of loan commitments to owner-occupiers excluding refinancing increased by 3.0% to 27383 on a seasonally adjusted basis, down a touch from the March’s 3.0% increase. The annual growth rate accelerated from 7.3% after revisions to 9.3%.
