Australia: Housing finance approvals fall - Westpac

Matthew Hassan, Research Analyst at Westpac notes that Australia’s September housing finance approvals data came in well below expectations with the number of approvals to owner occupiers falling 2.3% vs consensus forecast of a 2% gain and industry data that had pointed to a modest rise.

Key Quotes

“The value of investor loan approvals also fell sharply, down 6.3%.” 

“In both cases, approvals were coming off surprisingly strong gains in Aug, owner occupier approvals up 1.5% and the value of investor loans up 4.8%. More generally, both owner occupier and investor finance approvals have been holding up better than other market measures in 2017. This partly reflects the nature of the macro-prudential measures introduced in late March which had a heavier impact on investor segments and, we suspect, significant ‘switching’ between ‘interest only’ and ‘principal and interest loan products’. Investor loan figures include refinance and hence would have been boosted by existing borrowers switching between loans (although technically this should only cover those switching between lenders).”

“The detail in Sep points to broad based weakness. Both Construction-related and first home buyer approvals retraced, the latter suggesting the boost from recent increases in state government assistance may already be waning. By state, Vic was the only major state to record a rise in owner occupier approvals.”

“Returning to the refinance question around investor approvals, our estimates suggest that a switching flow of 1% of outstanding investor loans per quarter – broadly comparable to the switching between investor and owner occupier loans back in 2015 – would be worth roughly $1.7bn a month of total investor finance, – around 14% of total investor approvals or 6% of total finance approvals across all segments. While there is no ready way to confirm these estimates they give some idea of the sensitivities of the data. If this switching effect drops out of the picture in coming months, total investor finance approvals could fall sharply.”

“Overall, the update brings the finance approval data more into line with the clear slowing signal already evident from turnover, auction markets and prices. The weakness in owner occupier loan approvals bears closer watching. For investors, a further pull back is likely in the months ahead depending on the extent to which loan activity has been supported by refinancing.”