Housing finance upswing as home buyers adjust to new normal

In the first half of 2020, we have seen a lending environment directly influenced by the coronavirus pandemic. In January this year, before the pandemic hit Australian shores, Australia’s lending commitment rates were thriving amidst rising demand for owner occupier housing. Notably, ABS data indicated eight months of uninterrupted growth in housing loan commitments. Within this environment we had seen increased buyer’s activity driving demand for credit within the market and banks easing lending conditions in the wake of the 2015-2019 credit crunch.

From February to May this year, the volume of lending has decreased, with home buyers leaving the market due to the effects of the pandemic. Most recently in May, experts predicted a 5.5 percent decrease in lending off the back of 4.8 percent decrease in April. These predictions were washed away when data showed an 11.6 percent decrease. ABS Chief Economist Bruce Hockman stated, “this was the largest fall in the history of the series, driven by strong falls in the value of loan commitments for housing in New South Wales and Victoria.” Nevertheless, lending through the pandemic has still been considerably higher than it was 12 months prior, suggesting that coronavirus has not been as much of a deterrent from the market as factors such as federal election uncertainty.

Record low numbers of home sales have seen the market go into a form of hibernation. It is possible that this hibernation will eventually lead to banks coming off a low base when Australia is released from coronavirus’ grips. Consequently, this will open the flood gates to much more accessible credit. With the reserve bank vowing to maintain low interest rates coupled with the banks increased lending we will likely see an increased demand for Australian property.

The latest ABS lending data from June has seen housing finance rebound after 4 months of decline. New loan commitments for owner occupier housing rose 6.2 percent over the month. For investors, the increase was 8.1 percent. Hockman gestured to the easing of coronavirus restrictions in May (following the first wave) as the cause of rising home loan commitments. Although the June numbers have suggested that there has been a bounce back, within the scope of lending it is not confirmed that this trend will continue to run. Victoria has since become the epicentre of the country’s second spike, with daily cases reaching as high as 700 in recent days.

The big four banks have been struggling over the first half of 2020, where retail banking has taken a significant hit. Westpac consumer lending is down $2 billion over the year, however Westpac CEO, Peter King has vowed that Westpac will “continue to lend to keep credit flowing in the economy and will have tailored relief packages to help consumers and businesses.”

The reserve bank’s decision to keep interest rates at a record low 0.25 percent will continue to reduce the effects of the coronavirus across the nation. AMP Capital economist Shane Oliver has stated that the RBA’s decision to keep the cash rate where it is will ensure that mortgage rates will stay where they are. The combination of pent up demand from lower sales volumes during the pandemic and with banks eager to lend, we will likely see high levels of market activity once the major effects of the pandemic and through.


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