Data released last Thursday by the ABS showed the value of new loan commitments across Australia fell by 11.6 per cent over May, representing the largest single monthly drop on record.
Despite the May figure sitting $2 billion below the average lending level of the past decade, CoreLogic’s data suggests June results may indicate a recovery.
As Eliza Owen, Head of Research Australia at CoreLogic, explains, May’s sales volume data might be representative of a partial recovery, while the record decline might be due to a natural lag in new housing finance data, which often trails sales volume data by a month.
“The two metrics have moved quite closely together historically,” Ms Owen said.
“This suggests that when more money is lent for the purpose of buying property, we will typically also see a rise in the number of transactions.
“While this is intuitive,” she continues, “there is something curious about the relationship. “
The simple explanation lies in how the two metrics are dated.
CoreLogic’s sales volumes date from when the contract is signed, whereas housing finance commitments are only counted by the ABS once a home loan application has been approved; a loan contract or letter of offer has been issued to a borrower; and the borrower has accepted the offer.
Therefore, the loan commitment is technically finalised well after a sale has occurred and been included in CoreLogic’s sales volume data. This accounts for a discrepancy in data.
“In some instances, shifts in the direction of sales volume estimates produced by CoreLogic are a month ahead of changes in the direction of new housing finance. The correlation coefficient between the two series is slightly strengthened when the sales volumes are lagged by one month.”
Therefore, while sales volumes started to rebound in May, housing finance hit a record decline. Sales estimates rebounded 29.5 per cent over June.
“Underlying data shows an 11.5 per cent increase in valuations for the purchase of property between May and June. The Early Market Indicators report has continued to show an uplift through July, rising 11.1 per cent in the week ending July 9.”
Other COVID-19 related factors could have caused an additional lag in the housing finance data.
“These include banking staff and processes adjusting to remote working conditions, processing additional forbearance provisions, and a surge in refinancing applications,” Ms Owens said.
“Understanding this detail of the data could help us understand whether housing finance numbers will have fallen further in June, or if they would start to recover.”
