The Australian Bureau of Statistics (ABS) has released data on new mortgage commitments, which shows that the total value of new mortgages originated declined 2.9% in April to be 25.8% lower year-on-year:
Owner-occupier mortgage commitments fell 3.8% in April to be 24.3% lower over the year.
Investor mortgage commitments fell 0.9% in April to be down 28.6% year-on-year.
Despite the monthly decline, the annual growth rate edged higher (or was less negative), after bottoming in January:
The growth in new mortgage commitments has traditionally been a key leading indicator for house prices for the simple reason that nearly all buyers use a mortgage.
So, when the value of new mortgage commitments rises, so do house prices.
Therefore, the sharp fall in mortgage commitments in April should, other things equal, be a bad omen for the housing market.
However, the next chart plots the quarterly growth rate in new mortgage commitments against the growth in dwelling values, as measured by CoreLogic:
As you can see, both indicators have rebounded sharply from their trough.
Moreover, auction clearance rates were strong in May, which suggests housing market momentum remains robust despite the dip in new mortgage commitments:
In short, this fall in new mortgage commitments looks like ‘noise’ rather than a ‘signal’, and I expect it to bounce back alongside the bounce in home prices, despite the Reserve Bank’s aggressive monetary tightening.
But if mortgage commitments do continue to retrace, then the current house price rebound will stall.
