Falling housing finance commitments hint that capital gains are likely to moderate over the coming months

The value of housing loan commitments taken out in February fell by 3.4 percent over the month in seasonally adjusted terms; the fifth consecutive monthly decline in home lending and the largest monthly fall since May 2008.

Total value of housing finance month on month

Investor finance has remained much more resilient.  The value of investor loan commitments fell by just 1.1 percent; the first month-on-month fall since interest rates started to rise.  Investors now account for just over 31 percent of the value of all housing loans, up from a recent proportional low of just 24 percent early last year.  Over the last decade investors as a proportion of the broader marketplace have averaged at about 32 percent.

Month on month value OO v Inv

Investors are likely to remain one of the most active market segments going forward as they are much less sensitive to interest rate rises and affordability issues.

At the other end of the spectrum, first home buyer numbers are continuing to decline in the market.

First home buyers

With the boost to the First Home Owners Grant now completely wound back, interest rates rising and affordability issues becoming more prevalent, first home buyers no longer have the large incentives that were present over the first three quarters of last year.

The housing finance figures from the ABS provide one of the best and most timely barometers of market conditions.  When housing commitments show consistent falls we normally see lower rates of capital gain a few months later.  Looking at the two sets of data graphed below you can see the clear relationship between the two.

Growth in housing finance v Capital gains

Falling housing loan commitments provide another hint that, despite the strong growth in home values seen over the first two months of the year (+2.0% in Jan and +1.4% in Feb), the rapid rise in housing values is likely to be drawing to a close.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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