The COVID-19 shock finally showed its impact on housing finance data.
New lending by both owner occupiers and investors has recorded the biggest monthly fall on record, but Prime Minister Scott Morrison says it's still too early to make any calls on any house prices.
"I think it would be as little premature to be making medium or even short-term forecasts about the Australian property market at the moment," Mr Morrison said.
"Of course you're going to see a resistance, a concern amongst consumers during the times we're experiencing right now. It would be surprising if we did not see that.
"But I think, fundamentally, the structural position of the housing markets in Australia would tell a far more stronger tale in terms of their resilience."
The ABS lending indicator statistics show new home lending dropped by 11.59 per cent, month-on-month, according to the seasonally adjusted data.
New housing loan approvals for May fell more than expected, down -11.6% m/m against the -5.5% consensus and -4.8% previously.
This is a record monthly fall and follows the sharp decline in housing market activity during the lockdowns in April to early May.
In contrast, refinancing activity continues to rise sharply with the level of refinancing activity the highest on record.
Existing borrowers are most likely taking advantage of the low interest rate environment and the refinancing incentives available amongst major lenders.
Motor vehicle financing also rose strongly, after falling sharply in April in a sign that car buying activity is rebounding after being impacted by the pandemic, though still remains below pre-COVID 19 levels.
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RateCity.com.au research director, Sally Tindall, said the drop in home lending was a result of the COVID-19 restrictions in April, as new home loans typically take a number of weeks to settle.
“Today’s figures show just how hard COVID-19 hit the housing market during lockdown,” she said.
May recorded the biggest monthly drop in the value of new home loans settled, as vendors pulled the pin on listings, and on-site auctions were banned for weeks.
While we could see a small rise next month in response to a lifting of COVID-19 restrictions, it’s still likely to be a long road ahead for the home lending market.
Refinancing, however, went through the roof in May, as homeowners looked for quick ways to reduce expenses and get into a better financial position.
Mortgage holders sick of paying an excessive loyalty tax are capitalising on the record low new customer rates on the market.
Banks have been inundated with refinance applications, with some unable to keep up with the demand seeing processing times blow-out,” she said.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
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