Queensland leads housing finance growth

The latest ABS housing finance data showed the volume of finance lent for the purchase of property increased by 5.9 per cent in the month of September, taking the quarterly increase to 20.0 per cent, the highest quarterly growth rate on record.

This follows a 10.9 per cent contraction in housing finance through the June quarter, when strict social distancing restrictions, such as a ban on open home inspections and onsite auctions, resulted in a sharp drop in transactions.

Further, housing finance for the purchase of property totalled $62.7 billion in the September quarter – the highest level since the March 2018 quarter, and just 6.6 per cent below the peak of the lending series in the three months to May 2017.

“The uptick is a result of eased social distancing restrictions across the country, which have coincided with historically accommodative monetary policy, which sees mortgage rates at a record low,” Ms Owen said.

Of the states and territories, Queensland accounted for most of the increase in lending for the purchase of property. The value of housing finance commitments (excluding refinancing) increased by 40.2 per cent in Queensland over the September quarter, accounting for around 31 per cent of the uplift in finance nationally.

This was followed by NSW, which contributed 30 per cent to the uplift nationally, as the state saw a 16.7 per cent increase.

Meanwhile, Western Australia saw the largest increase in housing finance for the purchase of property over the September quarter, rising over 55 per cent. “This further supports the view that the WA and Perth dwelling markets are resuming an upswing following the disruption of COVID-19,” according to Ms Owen.

Victoria also followed the upward trend despite extended restrictions on the transaction of property for much of the quarter, with a 4 per cent uplift in the value of finance for the purchase of property, which was entirely fuelled by owner-occupier purchases. However, finance secured for the purpose of investment property purchase fell by -4.3 per cent across the state in September.

“As with the strong bounce-back in many economic indicators over the September quarter, eased social distancing led to a rise in consumer sentiment and an increase in sales and listings volumes,” Ms Owen highlighted.

CoreLogic estimates that sales volumes increased around 27.7 per cent in the quarter, despite renewed restrictions across Victoria.

Owner-occupier market

An increase in secured finance (excluding refinancing) to owner-occupiers accounted for 85.6 per cent of the uplift in money lent for the purchase of housing in the September quarter.

The owner-occupier first home buyer cohort had the highest rate of growth in secured finance, at 24.4 per cent in the quarter. This compares with an uplift of 23.1 per cent for changeover owner-occupiers and an 11.3 per cent rise in investors.

According to Ms Owen: “It is worth making the distinction that while first home buyers had the fastest growth in lending over the quarter, the majority of secured finance (53.1 per cent) still went to ‘changeover’ owner-occupier buyers, such as upsizers and downsizers.”

While investors have been retreating from the housing market since a national downturn in 2017, FHB participation continues to rise, exacerbated only by COVID-19 and the government stimulus that came with it.

Come next year, FHB purchases may be limited as temporary grants and concessions wind down and house prices rise off the back of low mortgage rate settings.

“In contrast, we could see a lift in investor participation as prospects for capital gains solidify, providing a further incentive for investors, along with more properties returning a positive cash flow, thanks to such extremely low interest rates.”

Moving forward, CoreLogic estimates lending for the purchase of property will continue to remain elevated due to loose monetary policy.

However, the steep increases in finance seen in recent months are unlikely to maintain such a strong trajectory, and quarterly growth rates in housing finance volumes are likely to slow as pent-up demand runs out of steam.