Sharp Fall in Housing Finance

The latest figures released by the Australian Bureau of Statistics (ABS), reports a record 11.6% drop in new finance commitments for purchasing dwellings, in May 2020, the single largest monthly drop in 18 years.

Australia’s leading real estate portal CoreLogic, says the June results, when finalised could show a partial recovery.  The chart below shows the monthly value of new finance for housing from the ABS, against the number of property transactions estimated by CoreLogic. The two metrics have moved quite closely together historically. This suggests that when more money is lent for the purpose of buying property, we will typically also see a rise in the number of transactions.

In some instances, shifts in the direction of sales volume estimates produced by CoreLogic are a month ahead of changes in the direction of new housing finance.
The lagging of finance data has been particularly evident in the dramatic disruption that has played out amid COVID-19. CoreLogic sales volumes started rebounding over May, while housing finance saw a record decline.

This could be because of the way sales volumes and finance commitments are dated. CoreLogic sales volumes generally date sales from the sale’s contract date. But housing finance commitments, according to the ABS, are only counted when the following three criteria are met:

  • A home loan application has been approved
  • a loan contract or letter of offer has been issued to a borrower, and
  • the borrower has accepted the offer.

This means that a housing finance commitment could occur in the month after a property is purchased.

Based on the fact that CoreLogic sales estimates rebounded 29.5% over June, housing finance values may actually have bottomed out in May. However, there is so much uncertainty in general, in the midst of Covid-19, and Victoria’s heightened state of lockdown, has impacted on consumer confidence, not just limited to that state.  This means that there is potential for further falls in new lending throughout this period…of which, we have no end date.

Challenging times. Stay safe. Queensland’s doing well, but we must remember to keep up our social distancing.