Summary: Value of loan commitments up 5.4% in October, more than expected; 4.9% higher than October 2022; UBS: upside risk for housing credit growth; ACGB yields fall; rate-rise expectations soften; value of owner-occupier loan approvals up 5.6%; investor approvals up 5.0%; number of owner-occupier home loan approvals up 2.8%.
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. However, there has been a considerable pullback since then, although the total value of new loans is still elevated by historical standards.
October’s housing finance figures have now been released and total loan approvals excluding refinancing increased by 5.4% In dollar terms over the month, more than the 1.1% rise which had been generally expected as well as September’s revised gain of 1.5%. On a year-on-year basis, total approvals excluding refinancing rose by 4.9%, in contrast to the previous month’s comparable figure of -4.0%.
“Since the level of loans troughed in February 2023, they rebounded by a cumulative 17.5% and are now at the highest level since August 2022,” said UBS economist George Tharenou. “The stronger trend of loans in recent months now suggests upside risk to our outlook for housing credit growth.”
Commonwealth Government bond yields fell on the day, dragged down by large falls of US Treasury yields on Friday night. By the close of business, 3-year and 10-year ACGB yields had both lost 4bps to 4.04% and 4.46% respectively while the 20-year yield finished 5bps lower at 4.75%.
In the cash futures market, expectations regarding further rate rises softened. At the end of the day, contracts implied the cash rate would remain close to the current rate of 4.32% and average 4.33% through December and January but then average 4.385% in February. May 2024 contracts implied a 4.40% average cash rate while August 2024 contracts implied 4.33%, just 1bp more than the current rate.
The total value of owner-occupier loan commitments excluding refinancing increased by 5.6%, up from September’s 0.8% rise. On an annual basis, owner-occupier loan commitments were 1.4% higher than in October 2022, in contrast with September’s comparable figure of -7.7%.
The total value of investor commitments excluding refinancing increased by 5.0%. The rise followed a 2.8% gain in September, taking the growth rate over the previous 12 months from 3.4% to 12.1%.
The total number of loan commitments to owner-occupiers excluding refinancing increased by 2.8% to 26351 on a seasonally adjusted basis. The rise was greater than September’s 0.6% increase and the annual contraction rate slowed 8.0% after revisions to 0.6%.
