Home loans recover modestly in May following sharp decline last April

Key takeaways

Housing loan approvals increased by 1.7% over May compared to the previous month but remained 4.9% lower than reported over May 2021.

Housing loan approvals are clearly off their recent highs and are likely to continue to turn lower as deteriorating housing market sentiment and higher rates bite on loan demand.

Owner occupier loan commitments peaked in May last year, and are now 9.7% lower, though have flattened out in recent months. Investor approvals had continued to grow over the past year, but look to have peaked in March, now 4% off their recent highs.

The investor share of new loans has recovered from a 2020 low of 23.1% to around its longer run average and stood at 34.5% in May.

Home lending activity recovered modestly over May following the sharp decline recorded in April that reflected that month’s holiday distractions.

Declining affordability as a result of recent strong home price growth over the past year however has acted to reduce buyer capacity and decrease home lending from recent record levels.

The ABS reports that the value of home loans seasonally adjusted (excluding land and alterations and additions) increased by 1.7% over May compared to the previous month but remained 4.9% lower than reported over May 2021.

Home lending over the first five months of 2022 is however 2.9% higher than recorded over the same period last year.

NSW, VIC, QLD and TAS reported home loan increases over May with TAS clearly the top performer - up by 7.4%

Although home lending recovered marginally over May, activity levels will likely decline over the coming months as the impact of sharply rising interest rates reduces home buyer capacity and weakens housing market confidence.

About Dr. Andrew Wilson Dr Andrew Wilson, Chief Economist of www.MyHousingMarket.com.au is widely regarded as Australia’s leading property economist.