Lending Slump One of the ‘Largest in History’

A whopping 27.3 per cent peak-to-trough slump in home loan lending is one of the largest in history, with lending falling a worse-than-expected 2.4 per cent in May.

ABS lending data, published on Thursday, shows lending slumped by 2.7 per cent to owner-occupiers and 1.7 per cent to investors, while first home buyers edged up to take their largest share of the lending market since 2011 at 18.4 per cent of total loans.

UBS analysts said the significant decline in “developer” loans — construction and the purchase of real property — was particularly worrying for the construction sector. Numbers plummeted 33 per cent over the past year.

While the chorus of opinion seems positive that the worst is now behind us — May’s numbers has pushed lending activity to the lowest levels recorded since the global financial crisis.

The figures prompted UBS economists George Tharenou, Carlos Cacho and Jim Xu to drop forecasts for housing activity to a bearish 20 per cent peak-to-trough fall.

“Given weak loans and starts for new housing and renovations we downgrade our already negative forecasts for dwelling activity to an 8 per cent [decline] in 2019 and 10 per cent in 2020.

“The 27.3 per cent peak-to-trough slump is one of the largest in history and near[ing] our long held -30 per cent view.”

Strong auction results, along with back-to-back cash rate cuts and APRA loosening has largely improved the residential market outlook.

AMP economist Shane Oliver pointed out that the lending figures may be a little dated and the June figures will be the ones to watch. ANZ economists also said that post-election data will likely see a lift in lending figures.

Westpac’s Matthew Hassan said that while the decline in lending in May was larger than expected, the flat volumes are broadly in line with other indicators suggesting that the housing market will stabilise mid-year.

“The update is of limited interest given the data pre-dates what looks to have been a meaningful shift in market conditions through June-July.”

In its quarterly meeting minutes published Wednesday, the Council of Financial Regulators also observed a “levelling out” of house prices and lending conditions.

The council said that strong auction clearance rates and improving house prices is evidence of stabilisation in the Sydney and Melbourne housing markets.