"Lockdown" states still a drag on October home loan approvals

Summary: Number of home loan approvals decline by 4.0% in October; declines “delayed effects” from  lockdowns, bounce back “likely”; value of loan commitments decrease by 2.5%; value of owner-occupier loan approvals down by 4.1%, investor approvals up by 1.1%; loan approvals down 11.9% over past three months in NSW, Victoria, ACT but up 0.3% in rest of Australia.

A very clear downtrend was evident in the monthly figures of both the number and value of home loan commitments through late-2017 to mid-2019. Then the RBA reduced its cash rate target in a series of cuts and both the number and value of mortgage approvals began to noticeably increase. Figures from February through to May of 2020 provided an indication the trend had finished but subsequent figures pushed the annual rate of increase back to elevated levels before it dropped back in the September quarter.

October’s housing finance figures have now been released and the total number of loan commitments (excluding refinancing loans) to owner-occupiers declined by 4.0%. The fall is a repeat of September’s change after revisions while the rate of growth on an annual basis decreased from September’s figure of 7.2% to 0.6%.

“Overall the October update looks to be a bit of a ‘head fake’. While housing markets are heading into a moderation that should become clearer in 2022, the latest declines in finance look to be delayed effects from the ‘delta’ lockdowns with a strong bounce-back likely in coming months,” said Westpac senior economist Matthew Hassan.

Commonwealth Government bond yields finished the day in a rather messy fashion. By the close of business, the 3-year ACGB yield had added 2bps to 1.13%, the 10-year yield had lost 7bps to 1.67% while the 20-year yield remained unchanged at 2.21%.

“Overall housing finance approvals excluding refinancing are 9.2% below their May 2021 peak but remain elevated, 5 5% higher than pre-pandemic February 2020 levels,” said NAB economist Taylor Nugent.

In dollar terms, total loan approvals excluding refinancing decreased by 2.5% over the month, in contrast to the 1.5% increase which had been generally expected and a greater fall than September’s -1.4%. On a year-on-year basis, total approvals excluding refinancing increased by 32.2%, a little slower than the previous month’s comparable figure of 35.5%.

The total value of owner-occupier loan commitments excluding refinancing decreased by 4.1%, a larger fall than September’s -2.7%. On an annual basis, owner-occupier loan commitments were 15.1% higher than in October 2020, whereas September’s annual growth figure was 20.8%.

The total value of investor commitments excluding refinancing arrangements rose by 1.1%. The increase follows a 1.4% increase in September and it marks a full twelve months of consecutive gain since the last monthly decline in October 2020. On an annual basis, the value of loan commitments in the month was 89.6% higher than in October 2020, up from 83.2% in September. 

“The detail suggests most of this softening relates to ‘delta’ disruptions in New South Wales, Victoria and the Australian Capital Territory,” said Westpac’s Hassan. He noted the value of loan approvals fell by 11.9% over the three months to October in these jurisdictions while they increased by 0.3% in the rest of Australia.

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