The Australian Bureau of Statistics (ABS) released housing finance data for May 2015 last Friday.
The data showed a broad-based fall in commitments over the month with both investment and owner occupier lending falling.
In May 2015 there was $31.1 billion in housing finance commitments, down -4.4% from $32.6 billion in April.
The $31.1 billion worth of commitments was comprised of $18.1 billion in lending to owner occupiers and $13.0 billion to investors.
Over the month, the value of owner occupier housing finance commitments fell by -5.3% and investor commitments were -3.2% lower.
Year-on-year the value of owner occupier commitments has increased by 8.1% compared to a 19.4% rise in investment mortgage lending.
Based on this data the proportion of total lending to investors was at a record high 41.9%
If you exclude refinances and look at just new lending, investors accounted for a record high 52.5% of all lending over the month.
The $18.1 billion in commitments to owner occupiers in May consisted of $1.7 billion for construction of dwellings, $1.0 billion for purchase of new dwellings, $6.3 billion in refinances and $9.1 billion for purchase of established dwellings.
Over the month, lending for new construction fell -5.4%, lending for purchase of new was -0.6% lower, refinance commitments were -3.7% lower and commitments for purchase of established were -6.8% lower, its largest monthly fall since February 2012.
Year-on-year commitments for new construction are -4.3% lower, for purchase of new dwellings they are 9.0% higher, refinances are 30.1% higher and purchase of established dwellings is -1.2% lower.
The data highlights that the recent strength in owner occupier housing finance commitments is largely due to refinances.
In fact if you remove refinances lending to owner occupiers is -0.9% lower over the year.
Investors committed to $13.0 billion worth of housing finance in May 2015 which consisted of $0.9 billion for the construction of new housing and $12.2 billion to established housing.
Over the month, investor commitments for new construction rose 1.6% compared to a -3.5% fall in commitments for established housing.
Year-on-year, commitments for new construction have increased by 64.1% compared to a 17.1% rise in commitments for established stock.
The data shows that domestic investors are largely targeting established housing stock as opposed to new stock.
Looking specifically at new mortgage lending (excluding refinances) $3.6 billion of commitments in May 2015 were for new product as opposed to $21.2 billion for established housing stock.
Over the month, lending for new fell by -2.4% compared to a larger -5.0% fall in lending for existing stock.
Year-on-year lending for new stock is 10.8% higher compared to an 8.5% rise for existing stock.
Although lending to new stock is rising quicker than lending for established, with a record high level of new construction the overall level of purchasing of new, at least domestically is quite low.
It makes you wonder just who is buying all these new homes being built, there’s really only two options: Australians are purchasing in cash or people are buying with cash sourced from overseas which is not measured in the housing finance data.
With the changes to mortgage lending policies from Australian banks starting to become public in May it will be very interesting to track the housing finance data over the coming months.
Since May we’ve seen further changes to lending policies announced and it remains to be seen if it is enough to cool the Sydney and to a lesser degree Melbourne housing markets.
Of course there remains the great unknown of just how many buyers are coming from offshore and how much that is impacting home values.
If the slowdown in lending experienced in May continues regulators will be happy to see that the changes Australian banks have made to their lending policies is having an impact on demand for mortgages.
The next test will be to see whether these changes are enough to slow the rate of home value growth, at the same time they will be hoping it does not deter developers from constructing all those new homes they have in their pipeline.