Aussies unleash spending power in record numbers
Lending; Chinese inflation

Home loans: The value of home loans fell by a record 11.6 per cent in May (consensus: -5.5 per cent) with owner-occupier loans down by 10.2 per cent and investor loans down by 15.6 per cent.

Refinancing: A record $10.1 billion of owner occupier home loans were refinanced in May, up 27.5 per cent in the month and almost double that of a year ago.

First home buyers: The value of owner occupier first home buyer home loan commitments eased from a
decade high of 37.4 per cent of all owner-occupier loans to 36.7 per cent in May.

Average mortgage: The average mortgage stands at $500,500, up 16.7 per cent on the year.

Chinese inflation: Chinese consumer prices rose by 2.5 per cent in the year to June, up from a 2.4 per cent annual rate in May (forecast: 2.5 per cent). Producer prices were down 3.0 per cent on the year (forecast fall of 3.2 per cent). The lending figures have implications for builders, housing-reliant businesses, finance providers, retailers, and companies dependent on consumer and business spending.

What does it all mean?

The housing finance market has been holding up quite well to the challenges posed by COVID-19. National home prices softened over May and June but are still up on the year. Home loans are volatile but up on the year. Interest rates remain super low but the key issue remains the job market. When people get
greater confidence about their jobs, clearly they will be more likely to build or buy homes.

The region to watch is Victoria. If the spread of new COVID-19 cases can be quickly suppressed then this will lift home buyer confidence – not just in Victoria, but across the country.

Aussies aren’t too fussed at present to buy or build a new home. But they are keen on making sure that their home loan repayments are as small as possible so they have got the cash to use elsewhere in these difficult times. Over $10 billion home loans were refinanced in May, almost double that of a year ago.

What do the figures show?
Lending – May 2020

The value of home loans fell by a record 11.6 per cent in May with owner-occupier loans down by 10.2 per cent and investor loans down by 15.6 per cent. The accompanying table has the details of lending per category.

The value of loans to first home buyers in May fell by 10.5 per cent but was still 19.3 per cent higher for the year.

The number of owner occupier first home buyer loan commitments decreased 9.3 per cent in seasonally
adjusted terms.

By value, first home buyer loan commitments accounted for 36.7 per cent of all owner-occupier home loans in May (excluding refinancing) – down from a decade high of 37.4 per cent in April.

Personal finance fixed term loan commitments rose by 14.5 per cent in May after falling by 24.9 per cent in April. Commitments were down 10.8 per cent on a year ago. Car loans rose by 41.1 per cent after falling 37.8 per cent in April.

Personal lending from revolving sources (including credit cards) rose by 11.5 per cent in May after declining 5.1 per cent in April and declining by 5.5 per cent in March. Loans were down by 9.7 per cent over the year.

New finance leases fell by 0.4 per cent in May after rising by 26.4 per cent in April and falling by 6.3 per cent in March. Finance leases were down 4.0 per cent on the year.

The value of new loan commitments to businesses for construction fell by 39.2 per cent in April but was still up by 0.3 per cent on a year ago.

Loans for the purchase of property by business fell by 2.0 cent to be down by 35.4 per cent over the year. Loans by business for construction rose 3.6 per cent to be down 26 per cent on the year.

What is the importance of the economic data?

“Lending Indicators” is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.

What are the implications for investors?

The job market remains fundamental to prospects in the housing market. The good news is that people outside Victoria are returning to their workplaces rather than relying on JobKeeper and JobSeeker support. The other area to watch is the drying up of in-bound migration, a factor that will serve to restrain home purchase demand.

The active refinancing of home loans serves to strengthen household balance sheets, boosting spending
capacity. Certainly retail spending is healthy at present, and the record refinancing of home loans is part of the reason.

The average Australian mortgage eased 3.4 per cent in May but it is still up a significant 17 per cent on a year ago. In all but the Northern Territory the average mortgage has lifted over the year, adding to the desire by Aussies to refinance their loans and reduce the mortgage repayment.

Published by Craig James, Chief Economist,CommSec