The total value of Australia’s home loans was 1.2% lower in July 2023, compared with the prior month, but was down 14.1% on an annualised basis, compared with the previous year.
It is never clear whether housing finance is a lead indicator or a lag indicator. But what we do know is there is a strong correlation between housing prices and housing finance. Furthermore, rising house prices appear to provide buyers greater confidence in the value of new home construction.
Against that background we can see a continuing improvement in housing finance on an annualised basis with the rate of decline easing from a peak of -32.4% in January 2023.
To place the improving loan conditions in context, it appears the massive peak in loan activity in July 2022 and the subsequent decline through to February 2023, has stabilised in recent months. Importantly, and this should not be lost on us, that stability is at levels well above the pre-COVID experience.
Had it not been for the disruption of the pandemic, current total loan values would be at record levels.
The quarterly median house price series also supports the picture for housing finance. Median prices for residential dwellings in the June quarter were up 2.8% with the year-on-year decline easing to a benign 0.9%.
As the chart below demonstrates, the recent annualised bottom for median house prices was recorded in the March quarter of 2019. It is true the recent decline has been very large but coming off observably unsustainable highs.
The annual number was dragged back toward a positive trend by June quarter median prices that lifted 2.8% on average.
On a capital city basis, June quarter median house prices were up for Sydney, Brisbane, Adelaide, Perth and Darwin. Negative experience for house prices evident in Melbourne, Hobart and Canberra.
Actual median prices (in $’000s) and percentage changes are detailed in the table below, for all capital cities.
Source: ABS Cat 6432.0 Table 2
Commenting on this astounding experience with dwelling prices in the context of the last three years, The Guardian’s Greg Jericho wrote pithily:
“…come the nuclear holocaust the only things remaining will be cockroaches and Australians still trying to outbid each other at an auction for a place to live in.”
That said, as Michael Bleby pointed out in the Australian Financial Review, the growing number of auctions will increase supply and therefore dampen some of the price increase momentum for established housing.
It is helpful to assemble median dwelling price and housing finance movement data. We can see below that this overly shows a reasonable correlation between dwelling prices and finance changes, albeit that because the price is spread across many properties, the percentage movements are generally smaller.
This chart helps confirm that dwelling prices and total loan values have turned the corner and are now growing.
