Australia’s housing finance recovers strongly in May; house price growth likely to moderate in 2016

The value of Australia’s housing loan commitments recovered strongly in May owing to solid investor segment. Other housing indicators continued to be strong, implying that confidence in the housing market remains positive.

New loans for investor housing rose 3.9 percent in May after falling in April. Meanwhile, number of new loans to owner occupiers dropped 1 percent in May after rising 1.4 percent in April. But, on a year-on-year basis, loans were up 11.4 percent in May, the strongest annual growth in two years.

On a month-on-month basis, the housing loan series tends to be volatile, noted St George Economics in a research report. It is too soon to measure the effect on lending from the RBA’s rate cut in May. A clearer scenario will be available in the months to come regarding how the Australian central bank’s easing of the policy will impact the housing market.

Demand for housing continues to be high and is underpinned by low interest rates. However, APRA measures are exerting a cap on investor demand. Increasing prices, resilient building permits and buoyant auction clearance rates are also supporting strong housing demand.

Loans continue to fall for first home buyers, while the share of first home buyers as declined to the lowest on more than a decade. Region wise, NSW, ACT, Victoria and South Australia have registered strong growth in May on an annual basis. Meanwhile, Queensland recorded a moderate annual growth. In Western Australia and the Northern Territory, housing loans shrank in the year.

“We expect the pace of growth in dwelling prices to slow this year, although the interest rate cut earlier this year will help support demand”, added St George Economics.

Meanwhile, construction of houses is expected to continue to expand throughout 2016. Loans for the construction of new houses, particularly from investors, continue to push to record highs. This implies that building permits might continue to strengthen, noted ANZ in a research report. Moreover, the activity is expected to remain high for certain period of time, given that there is a considerable pipeline of work.