Housing finance slumps

The mortgage market slumped in January, with the value of dwelling commitments down more than five per cent from the previous month.

Australian Bureau of Statistics' housing finance figures, published yesterday, show that (on a seasonally adjusted basis) the number of dwellings financed fell 4.5 per cent, from 51,200 in December to 48,900 in January.

In addition, the value of dwellings financed fell five per cent from A$21.4 in December to $20.3 billion in January.

Year-on-year, the number of loans being written each month is down about two per cent.

The critical factor was the state of the Queensland market, where extreme weather led to a 16 per cent fall in activity in January.

The big fall was foreshadowed by mortgage aggregator AFG, which reported a 40 per cent fall in activity from December to January. The ABS raw data shows a fall of about 30 per cent over the period.

So extreme was the AFG figure that it looked as though it was not representative of the broader market. Now it looks to be pretty much on the money.

AFG executive director Kevin Matthews put the decline down to the Queensland floods. Queensland was the state that recorded the biggest fall in AFG's business - down 48.9 per cent from December.

Matthews said another factor in the slump was uncertainty about the direction of the housing market, with buyers spooked by commentators saying Australia has a residential housing market bubble in the making.

AFG issued its February figures this week, reporting sales of $2.05 billion - a little below the December figure of $2.07 billion. Ignoring the January figure, AFG's figures show a 9.7 per cent decline over the past year.

The bottom is not falling out of the market, however, although the trend does indicate further weakening.

Broker Mortgage Choice has also released market data for February. This shows a marked fall in demand for fixed rate loans. Ten per cent of loans approved in February had a fixed interest rate, compared with 15.3 per cent in January and 15.2 per cent in December.

AFG and ABS data also show a significant fall in demand for fixed rate loans.