Summary: Value of loan commitments down 1.2% in July, less than generally expected; 14.1% lower than July 2022; Westpac: weakness centred on construction-related owner-occupier lending; value of owner-occupier loan approvals down 1.9%; investor approvals down 0.1%; number of owner-occupier home loan approvals down 2.3%.
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 elevated levels in 2021. However, there has been a considerable pullback since then.
July’s housing finance figures have now been released and total loan approvals excluding refinancing declined by 1.2% In dollar terms over the month, a greater fall than the 0.5% decrease which had been generally expected and June’s 1.6% fall. On a year-on-year basis, total approvals excluding refinancing fell by 14.1%, up from the previous month’s comparable figure of -18.5%.
“The detail showed weakness centred on construction-related owner-occupier lending, with much milder declines for other segments,” said Westpac senior economist Matthew Hassan. “As such the picture is still consistent with the wider narrative of a gradual, price-led recovery in established markets but suggests there may be more weakness coming through around new building.”
The figures came out on the same day as the latest private credit figures and Commonwealth Government bond yields declined modestly. By the close of business, the 3-year ACGB yield had slipped 1bp to 3.72% while 10-year and 20-year yields both finished 2bps lower at 4.00% and 4.35% respectively.
In the cash futures market, expectations regarding further rate rises softened a touch. At the end of the day, contracts implied the cash rate would remain steady at the current rate of 4.07% through September, move up to 4.09% in October and then average 4.13% in November. February 2024 contracts implied a 4.145% average cash rate and May 2024 contracts implied 4.125%, around 6bps more than the current rate.
The total value of owner-occupier loan commitments excluding refinancing decreased by 1.9%, up from June’s 3.1% fall. On an annual basis, owner-occupier loan commitments were 17.5% lower than in July 2022, above June’s comparable figure of -20.1%.
The total value of investor commitments excluding refinancing arrangements slipped by 0.1%. The decline followed a 1.3% increase in June, slowing the contraction rate over the previous 12 months from 15.2% after revisions to 7.2%.
The total number of loan commitments to owner-occupiers excluding refinancing decreased by 2.3% to 24,645 on a seasonally adjusted basis. The fall was a smaller one than June’s 3.8% decrease and the annual contraction rate slowed from 16.9% to 15.9%.
