The federal government's HomeBuilder scheme and other similar grants being offered in some states could not have come at a better time as the COVID-19 outbreak started to show its impact in the lending market, according to an expert.
Cath Hart, executive director at the Housing Industry Association (HIA), said the latest data from the Australian Bureau of Statistics (ABS) show the early impact of the COVID-19 shock to new-home lending.
According to ABS data, lending for new homes in Western Australia has fallen by more than 17% in April. The state also issued the lowest number of first-home buyer loans in almost a decade.
"The housing finance data vindicates the timing behind Prime Minister Scott Morrison and WA Premier Mark McGowan's introduction of their respective stimulus programs, the HomeBuilding Scheme and the Building Bonus Grant, to support the residential building sector," she said. "The data highlight why it is so important that both of these job-protection schemes have targeted homebuyers from across the spectrum."
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Tim Reardon, chief economist at HIA, said the latest finance data have yet to show the full impact of COVID-19. In fact, while activity in the housing market slowed considerably in April, finance figures remained elevated, as they reflected loan applications initiated in previous months.
"The modest decline in finance approvals in April reflects processing delays due to COVID," he said.
Adrian Kelly, president of the Real Estate Institute of Australia, said the COVID-19 impacts were being seen through both reduced demand from borrowers and tighter lending criteria.
"What is more sobering is that ABS says COVID-19 operational impacts experienced by some lending institutions resulted in a backlog of March housing loan applications being processed in April, which moderated the April fall in loan commitments," he said.
While the overall decline in housing loans was due to the drop in the segment of owner-occupiers targeting established homes, financing for new homes increased by 2.9%. On the other hand, loans to investors also fell, down by 4.2% during the month.
Financing commitments amongst first-home buyers also decreased by 3.8%. Despite this, the proportion of first-home buyers as part of the overall owner-occupier loans remained high at 36.7%. Reardon said this is the largest share of first-home buyers in the lending market since 2009.
"The volume of residential building activity is expected to decline throughout the rest of the year. Various state stimulus programs will be important in mitigating the extent to which this downturn weighs on the post-COVID economic recovery," he said.
Maree Kilroy, economist at BIS Oxford Economics, said the modest lag in approvals could indicate a further contraction in loan data for the month of May. However, a gradual recovery could be expected.
"The easing of restrictions on live auctions and open house inspections will see new housing loans gradually recover over the subsequent months," she said. "The recently announced HomeBuilder program will provide material support for new construction loans, but this will not be evident until the end of 2020."
