Fears for property as home lending collapses

Housing market sentiment collapsed in the second quarter as new home lending took its biggest fall on record, sparking growing fear in the property sector.

New lockdown restrictions in Victoria will make the on-site property auctions that returned in May disappear again. Picture: Alex Coppel.

Housing market sentiment collapsed in the second quarter in a potentially dire sign for the remainder of the year as lock downs are reimposed in Melbourne.

The impact of the first lockdown was revealed in ABS data showing new home lending plunged $2.15bn in May, the biggest monthly drop ever recorded.

Meanwhile NAB’s Residential Property Index fell to a survey low -33 points for the quarter, a plunge from a positive 38 points in the pre-crisis first quarter.

All states turned down sharply, but the impact was biggest in Victoria and NSW, where prices and rents are expected to fall most in the next 12 months.

NAB said new and established housing markets were being supported by owner occupiers. But higher activity from foreign buyers was also reported in the second quarter, especially in new property markets in Victoria, although this will now likely be hit.

Earlier on Thursday property researched Core Logic said Melbourne house sales and new listings were set to plunge as the market faces another round of selling restrictions and blows to consumer confidence.

During Victoria’s first lockdown, new listings coming onto the market more than halved from their earlier highs to be 34 per cent lower than the same time in 2019, Core Logic said.

Employment security is now the overwhelming impediment for buyers of existing property, with new research also revealing the biggest impacts to the housing market going forward will likely come from rising unemployment, job uncertainty and consumer confidence, according to around eight in ten surveyed property experts.

NAB chief economist Alan Oster has maintained his stance on property prices and expects the impact of the COVID-19 downturn will see a decline in prices of around 10-15 per cent from peak to trough.

“While prices have held up slightly better than expected, they have now declined for two consecutive months across the capitals and we expect this to continue for some time yet,” he said.

The easing in prices in Sydney and Melbourne came after a very strong period in growth from mid-2019 where prices troughed, he added.

“While the initial COVID-19 related restrictions on housing activity have eased, the economy has undergone a very large contraction, and while we appear to have passed the trough in activity, it will take time for the recovery to unfold,” he said.

Figures from the ABS also showed new home lending plunged $2.15bn in May, the biggest monthly drop ever recorded.

The ABS lending indicator statistics showed new home lending dropped by 11.59 per cent, month-on-month, according to the seasonally adjusted data.

Refinancing, however, hit a record high – the number of external refinances increased by 29.19 per cent from April to May, and 63.1 per cent, year-on-year.

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,“ Ms Tindall said.