APRA's desire to engineer a moderation in the growth in investment lending may be coming to fruition, with a decline in demand for new business evident in July, including a marked fall in one of the property "hot spot" cities, Melbourne.
In his opening statement to the House of Representatives Standing Committee on Economics inquiry into home ownership last Thursday, APRA Chairman Wayne Byres made the comment: "whilst actual growth in investor lending remains marginally above the benchmark of ten per cent, we have seen a clear moderation in the previous strong upward trajectory."
This statement was supported by the Australian Bureau of Statistics June 2015 housing finance statistics, released on Friday, which showed a modest 0.2 per cent increase in the value of investment lending in trend terms and a 0.7 per cent decline on a seasonally adjusted basis.
That is, the official data, which is released some six weeks after the end of the reporting period, is already demonstrating evidence of a slowdown in investment lending, from the extremely strong growth experienced in late 2014/early 2015.
In terms of owner-occupiers, the ABS reported a stronger 4.4 per cent increase in the number of owner occupier commitments on a seasonally adjusted basis, and a 0.6 per cent decline in trend terms.
Based on the correlation between the ABS housing finance statistics and CoreLogic RP Data's Residential Mortgage Index, we can expect that the trend of softer growth numbers will have continued into July. The ABS will report this data on 9 September. This is demonstrated in the chart below:
RPData-Aug-14-08-15-320px-2
Activity across CoreLogic RP Data's mortgage platforms for the month of July provides some evidence of the extent of the market slowdown.
In broad terms, the market generally takes a breather in the first two weeks of July every year to coincide with school holidays around the country. It then picks up again for the last two weeks of the month.
However, a pickup was not evident this year with July platform volumes approximately seven per cent below June volumes, although they remain approximately six per cent higher than July 2014.
Activity at the top end of the market remained strong, with the level of activity in the A$750,000 to $1 million, $1 million to $1.5 million and the $1.5 million and upwards price brackets remaining steady.
It was the price brackets below $750,000 that softened in the month and where one would typically expect investors to be more active than in the higher price brackets.
In terms of geographic split, and with all eyes focused on Sydney and Melbourne, mortgage related activity in Sydney declined four per cent month-on-month from June, slightly below the national average of seven per cent, whilst Melbourne exhibited a larger decline of eight per cent for the month of July.
These figures suggest that APRA is realising its policy goals and that the banks it supervises are cooperating.
The statistics also highlight the extent of the challenge for financial institutions in seeking to mitigate this reduced growth in investment lending through increased retention and acquisition in the owner occupied segment.
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Craig MacKenzie is executive general manager, commercial at CoreLogic Asia (RP Data)