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October, 2018 2:16 PM



Investor demand for home loans cools

Investor demand for home loans cools

The number of loans (commitments) by home owners (owner-occupiers) fell by 2.2 per cent in March ? the sixth fall in seven months. Loans are down by 3.5 per cent on the year.

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11.05.2018 03:49 PM

Record home loans, but investor demand cools
Housing finance (March)

Number of home loans: The number of loans (commitments) by home owners (owner-occupiers) fell by 2.2 per cent in March – the sixth fall in seven months. Loans are down by 3.5 per cent on the year.

Value of home loans: The value of new housing commitments (owner occupier and investment) fell by 4.4 per cent in March from six-month highs.

Record lending: In trend terms the value of loans to budding home owners hit a record high of $21.23 billion in March. Victorian and Tasmanian loans are at record highs.

First home buyers: The proportion of first-time buyers in the home loan market fell from 17.9 per cent to a six-month low of 17.4 per cent (decade-average 17.8 per cent). 

What does it all mean?

On average, around $21 billion in new home loans are made to budding home owners every month. The figure bobs around from month to month. But overall, there is still healthy interest by Aussies in buying or building their dream home. And that is shown by the trend value of home loans hitting record highs.

In trend terms investment loans are down almost 11 per cent on a year ago with loans to budding owners up almost 5 per cent. There has been a distinct shift in the home loan market. Clearly investors are re-doing sums. The prospect of strong price appreciation for investment properties has moderated in many parts of the country. And then there is the question of getting or retaining tenants.

Housing market activity has become more sustainable with a fundamental re-assessment occurring on future prospects. Fewer loans are being made to fund new builds. And that means that new home starts will ease in coming months. Work will be harder to get. And building operators may switch interest to commercial and engineering prospects.

What do the figures show?
Housing finance – number (March)

The number of loans (commitments) by home owners (owner-occupiers) fell by 2.2 per cent in March – the sixth fall in seven months. Loans are down by 3.5 per cent on the year.

Excluding refinancing of dwellings, the number of loans fell by 1.7 per cent.

Loans by owner-occupiers for the construction of homes decreased by 4.4 per cent – the sixth decline in eight months.

Loans to buy newly-erected dwellings fell by 1.4 per cent after lifting by 6.3 per cent in February.

Loans for the purchase of established dwellings (excluding refinancing) fell by 1.1 per cent – the third fall in four months.

The number of refinancing transactions fell by 3.2 per cent – the third straight fall.

Changes in home loans across the country: NSW (down 2.9 per cent); Victoria (down 1.5 per cent); Queensland (down 0.3 per cent); South Australia (down 8.6 per cent); Western Australia (down 2.3 per cent); Tasmania (up 1.9 per cent); Northern Territory (down 10.4 per cent); ACT (up 2.6 per cent).

Housing finance – value (March)

The value of new housing commitments (owner occupier and investment) fell by 4.4 per cent in March from sixmonth highs.

Owner-occupier loans fell by 1.9 per cent and investment loans slumped by 9.0 per cent.

The value of loans by owner-occupiers and investors to build new homes decreased by 10.4 per cent in March to a 15-month low of $2.84 billion.

Housing finance – other statistics

The value of cancelled loans totalled $1.3 billion in March, down from $1.4 billion a year earlier.

Commitments actually advanced (loans made) totalled $19.1 billion, down from $19.3 billion a year earlier.

The proportion of first-time buyers in the home loan market fell from 17.9 per cent to a six-month low of 17.4 per cent (decade-average 17.8 per cent).

The proportion of fixed rate loans fell from 14.4 per cent to a 12-month low of 14.2 per cent.

And the average home loan across Australia stood at $388,100, up by 5.4 per cent on the year.

What is the importance of the economic data?

Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.

What are the implications for interest rates and investors?

Investors have adopted a cooler stance on housing. More stock has come on the market, reducing the prospect of out-sized capital gains in the short term. But budding owners are still active. Population continues to rise and more people are finding jobs.

Builders and real estate agents will need to work harder for business in many parts of the country. Clearly conditions are tough in the Northern Territory. But Victoria and Tasmania remain strong.

CommSec expects interest rates to remain stable until at least November. In fact the first rate hike may now occur in February next year.

Published by Craig James, Chief Economist, CommSec
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