Housing finance turns the corner

New housing lending commitments lifted 1.9% in June, rising to $16.820 billion on a seasonally adjusted basis. The June interest rate cut, the clarity and certainty that arrives post-election and possibly a perception that housing stock is at its cheapest has seen most of the key lending criteria turn the corner.

As the chart below demonstrates, the drop in lending appears to have ended, after having flattened out over the last few months. Maybe most significant is that while the value of lending to Owner-Occupiers was up 2.4% to $12.446 billion, lending to Investors rose 0.5% compared to May 2019, recording its first month of growth in the last year. 

Relevantly, the CEO of Lendlease, Steve McCann, told the AFR in August that the downturn had ended and that for affordability, free-standing houses in “…Sydney are the best they have been in five years, Melbourne’s … in four years, Brisbane … and Perth … the best it has been since 2002.”

McCann went on to say that borrowing capacity had also improved, with an upturn in housing activity an almost inevitable likelihood.


To go straight to the dashboard and take a closer look at the data, click here.

Investor lending was valued at $4.374 billion in June 2019. Despite the rise on the prior month, compared to June 2018, the value of investor loans is down 24.7%, against a total market in which lending was down 17.6%.

The chart below shows the experience for our favourite borrowers – the First Home Buyers. The data continues to be good news for this group, the value of loans to which grew 2.4% in June 2019, to $3.127 billion. Although 4.4% lower than in June 2018, First Home Buyers have grown their share of total dwelling finance over the year.


To go straight to the dashboard and take a closer look at the data, click here.

It is important we remember why we love new borrowers. They are our real engine room because ahead of all others, it is they who form new households. Every new household is ultimately a new dwelling. So, we also want to see the share of loans to First Home Buyers isolated from the total. As we can see below, this is where we find the really good news.


To go straight to the dashboard and take a closer look at the data, click here.

At 18.6% of the total in June 2019, the value of loans to First Home Buyers is at its highest level since November 2011. They are pulling their weight, creating new households and new building opportunities at the same time.

We need to keep in mind that as lending increases, First Hole Buyers will struggle to retain this position in the market.

With that context in mind, the next chart shows the value of all loans distributed by their type. While we can see there is some decay in the value of loans for new construction by Owner Occupiers (including First Home Buyers), they have proved comparatively resilient over the last year or more.

While the value of Owner Occupier loans for new construction was down 12.5% over the last year (from June 2018 to June 2019), for new purchases that value was 26.5% lower and 21.5% lower for investors in new construction. They had a strong month in June 2019 that skews their annual result upwards here.


To go straight to the dashboard and take a closer look at the data, click here.

Finally here, we want to take a look at the number and value of loans to First Home Buyers and Non First Home Buyers. The chart shows that while the number of loans has dropped overall, the average value per loan has flattened for established borrowers, as well as for newbies.

Established borrowers have seen the average price of their loans decline 1.4% to $402,852 in June 2019 compared to the prior June, the value of the average loan to first timers has lifted 0.2% to $347,443.


To go straight to the dashboard and take a closer look at the data, click here.

So, sure dwelling price growth has been flat on average, but the average size of loans suggests that the reported housing price decay is not all that bad. Maybe that has a bit to do with interest rates, but first time buyers are borrowing now pretty much what they were a year ago, which probably tells us something about real housing affordability in the Australian economy.

For all that monetary policy has recently been derided as an effective instrument in turning economic corners or even navigating a straight line in difficult weather, it appears to be working right now – at least when it comes to the fundamentals of housing finance.