Summary: Home loan approvals fall in number and value over April; fall not as large as expected; owner-occupier, investor loans both fall in dollar terms; further softness anticipated.
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 latest figures still do not provide some sort of confirmation.
April’s housing finance figures have been released and the total number of loan commitments (excluding refinancing loans) to owner-occupiers fell by 4.4%. The fall came after a 1.0% decrease in March after revisions. On an annual basis, the growth rate slowed from March’s revised growth rate of +2.5% to -1.2%.
“While this was a smaller drop than expected by us and the market, we expect housing lending to be soft for some time as income pandemic-related disruptions reduce both the borrowing capacity and the risk appetite of households,” said ANZ economist Adelaide Timbrell.
Westpac senior economist Matthew Hassan generally agreed. “Housing finance approvals came in better than expected for April but [they] are showing clearer signs of a turn lower.”
The report came out on the same day as Westpac’s latest Consumer Sentiment Index. Local Treasury bond yields fell at the long end, broadly following movements in their US Treasury counterparts overnight. By the end of the day, the 3-year ACGB yield was unchanged at 0.28% while the 10-year yield had lost 3bps to 1.01% and the 20-year finished 4bps lower at 1.65%.
In the cash futures market, expectations of a rate cut softened a little for months in the latter part of 2020 and through to late 2021. By the end of the day, July and August contracts implied a rate cut down to zero as 54% and 46% chances respectively, both unchanged from the previous day. September contracts implied a 39% chance of such a move in that month, down from 41%. Contract prices of months in the remainder of 2020 and through to late-2021 implied probabilities ranging between 32% and 45%.