June housing finance data saw the total value of loans fall 4.4% – the largest decline since the dark days of May 2020 as first home buyers were knocked down 10% to the lowest monthly total in two years. It is hard to escape the conclusion that for finance at least, the rout is on!
In June, the total value of loans fell to $30.97 billion, with the 4.4% decline sparing none of the participant groups. As the chart shows, loans to owner occupiers were down 3.3% by value, to investors by 6.3% and as above, the first-timers were pummelled out of their dream of a small piece of Australian suburbia (-10.0%).
We can be fairly sure the value of housing finance is yet to bottom out. If nothing else, sheer momentum looks likely to drag lending down. Even before the rate rises commenced, as we can see in the next chart, the value of loans was rushing lower.
That does not mean it’s all terrible out there. Interest rates are still relatively low historically and many households have plenty of buffer with which to work. We could argue that is why, as the third chart shows, there was growth in finance for newly built dwellings. The value of loans for that purpose were up 4.2% in June but are 7.1% lower than a year earlier.
Underscoring the decline in prices for existing dwellings, the value of loans for owner occupier and investor construction were up 7.3% and 17.0% in June, but their equivalent ‘Newly Built’ values were down 4.4% and 15.3% respectively. Whether builders, developers or others, the sale is on.
That is little wonder when we consider there could be $250 billion of low fixed rate mortgages due to be refinanced at significantly higher rates before the end of the year. The risk, as Jon Mott of Barrenjoey told the AFR’s James Thomson “indebted households could be facing a cliff”. The risk of sustained employment being outweighed by much higher interest rates (triple or more) and general household indebtedness could mean there are many households unable to refinance.
If that grim day arises, watch out for sharply lower house prices and very little money being around for new construction, at least for a time.
The counter to that is the shadow role of developers and ‘land bankers’ in controlling supply to maintain upward pricing momentum. As Ross Gittins observed in The Age in mid August, there is now a body of evidence demonstrating “…private land-bankers limit the regular release of land for developments in a way that ensures the market’s never flooded and prices just keep rising.”
Buyers may have their hands in their pockets, but the supply side could also be limited through a market trough. Perversely, this may mean that the trough is shallower than expected and shorter than might otherwise have been the case.
