Home Lending On The Rise

The latest housing finance data from the ABS underscores the renewed momentum in home mortgage lending, especially in the investment sector, and there was also a rise in first time buyers accessing the market.

  • The trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.6%. Investment housing commitments rose 1.7%, while owner occupied housing commitments was flat.  In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions rose 2.2%.
  • In trend terms, the number of commitments for owner occupied housing finance fell 0.1% in November 2016 whilst the number of commitments for the purchase of new dwellings rose 0.7%, the number of commitments for the construction of dwellings rose 0.2%, and the number of commitments for the purchase of established dwellings fell 0.2%.
  • In original terms, the number of first home buyer commitments rose by 13.4% to 8,281 in November from 7,302 in October; the number of non-first home buyer commitments also rose. The number of first home buyers as a percentage of total owner occupier commitments rose from 13.7% to 13.8%.

Total commitments in trend terms was $32.7 billion, of which $19.8 billion was owner occupied loans, and $12.9 billion for investment purposes. 39.5% of new lending was for investment purposes, and we see the proportion of investment loans continuing to rise, it is already too high.

Looking at the month on month movements, the seasonally adjusted changes highlight the rise in the investment funding for new construction, with a 40% rise on last month. Owner occupied refinancing fell.

The more reliable trend analysis shows the monthly movements, with a strong surge in investment loans by individuals, and a stronger fall in owner occupied refinancing.

Looking at total loan stock (in  original terms) around 35% of all loans outstanding are for investment purposes, and the slide we saw late 2015 appears to be easing.

Turning to the first time buyer, original data, the number of first time owner occupied buyers rose compared with last month, and the overall mix also increased.

Combining the first time buyer property investor data from our surveys, we see a spike in overall first time buyer activity.

Last month, around 1,100 more first time buyers entered the owner occupied market than the prior month (12%), and around 150 more in the investment sector.  We also saw a rise in the fixed rate loans, as borrowers try to lock in lower rates ahead of expected rises.

So overall, still strong momentum in the housing sector, and powered largely by an overheated investment sector.

 

Housing affordability is in dire straits

Good article from Julia Corderoy, news.com.au.

THIS map is a homebuyer’s worst nightmare.

It is no secret that housing affordability in many parts of Australia absolutely sucks, especially in Sydney. And it looks like it’s getting worse.

Since 2009, house prices in the Harbour City have almost doubled, rising by 97.5 per cent, according to CoreLogic data. In 2016 alone, Sydney property prices jumped 15.5 per cent.

“Sydneysiders saw dwelling values increase by approximately $10,000 per month over the past year, creating a significant boost in wealth for homeowners; at the same time we’ve seen mounting affordability challenges for aspiring homeowners,” CoreLogic head of research Tim Lawless said.

But new graphs released by the data company show in graphic detail just how hot the property market has been and how many areas have been affected.

The number of Sydney suburbs where house prices are now at least seven figures is astonishing and depressing. Graph: CoreLogic. The red in the graph illustrates suburbs where the median house price is $1 million or above. In December 2011, the red was concentrated in those suburbs within 10km or 20km of the CBD, as you would expect.

Six years ago, only two suburbs outside of a 50km radius of the CBD had median prices of at least seven figures. Most of the graph is coloured bright green or pale green, indicating median house prices of a substantially more acceptable $300,000 to $500,000.

Juxtapose that against December 2016 and the realisation is terrifying. Red is the dominate colour and many suburbs more than 50km from the city have crept into the red zone.

Those green suburbs with homes of $500,000 or less are almost exclusively located in fringe suburbs more than 50km from Sydney’s centre.

Not depressing enough? Buying an apartment isn’t necessarily that affordable now either. In this graph, which compares house prices to apartment prices in Sydney, it shows a considerable number of suburbs more than 10km from the CBD that now have apartment median prices of $1 million or more.

Even the number of suburbs where apartments are reaching $1 million is astonishing. Graph: CoreLogic.

Some suburbs more than 20km outside of the city centre even have apartments with price tags of at least seven figures. In fact, buying an apartment in 2016 doesn’t look dissimilar to buying a house in 2011 — and that’s just a difference of a bit over five years.

Another recent CoreLogic report put Sydney house prices at a whopping 8.3 times higher than annual household incomes and found households were dedicating an average of 44.5 per cent of their income to service a mortgage.

Broadly, a homeowner is considered to be under “mortgage stress” if they have to devote more than 30 per cent of their household income to repayments. So Sydneysiders are paying 1.5 times the amount already considered as being under “mortgage stress”.

But even being able to pay a mortgage on a Sydney home is a luxury, considering high prices are locking people out altogether as they struggle to save the deposit. To secure a mortgage and avoid Lenders Mortgage Insurance (LMI) you need to save a 20 per cent deposit.

This means, according to a recent Bankwest report, the average Sydney couple faces a gruelling 8.4 years of saving to front the deposit on a median-priced home.

Nationally, the average Australian couple spent 4.4 years saving up for a 20 per cent deposit to buy a median-priced house in 2016.

It isn’t just a Sydney problem either, albeit it is the worst in the New South Wales capital. In Melbourne, where house prices rose 13.7 per cent in 2016, prices have increased by a mammoth 83.5 per cent since 2009.

And when it comes to saving a deposit, Melburnian couples aren’t far behind Sydney. They are scrimping and saving for an average of 6.2 years to afford a deposit on a median priced home.

Even house prices in our nation’s humble capital of Canberra have risen by a third (32.6 per cent) post GFC, and 9.3 per cent over the past 12 months.

PRICES TO RISE FURTHER

There has been plenty of debate about the future of Australia’s house prices, particularly in notoriously hot Sydney and Melbourne, and whether it is time for some reprieve. What goes up must come down, right?

Monthly CoreLogic data has shown the rate of growth is easing. The annual rate of capital growth in Sydney, for example, has eased to 15.5 per cent as at December 2016 from its cyclical high of 18.4 per cent annual growth recorded at the end of July 2015.

However, according to research from HSBC released this month, Sydney and Melbourne house prices will rise “solidly” again in 2017.

The bank’s view is that capital city house prices will rise a further 3.4 per cent in 2017 before easing to 1.7 per cent in 2018. And this is in a year in which it expects the Reserve Bank to lift interest rates by 50 basis points to a 2 per cent cash rate.

But while house price growth will remain strong in 2017, HSBC chief economist Paul Bloxham noted the housing construction boom was “now near its peak” with significant falls in building approvals in recent months indicating an impending downturn.

He said we can expect construction will start to drop in late 2017.

“Like ships passing each other in the night, we expect housing construction to start falling around the time that mining investment stops its decline,” Mr Bloxham wrote.

“Australia’s investment outlook is then expected to be supported by mine maintenance and repair, infrastructure investment and the business investment needed to support services exports, such as tourism and education — Australia’s next growth engine.”

HSBC’s forecasting says investment in housing will serve a positive contribution to Australia’s GDP in 2017, with a predicted 4.4 per cent in the year — following a 9 per cent gain in 2016 — but will then fall 5.7 per cent in 2018.

ENDANGERED FIRST HOME BUYERS

So perhaps the collective complaint from millennials that it is much harder to get on the property ladder now than ever before shouldn’t be dismissed so quickly by their Baby Boomer parents as nothing more than a whinge.

According to the latest edition of the Adelaide Bank and Real Estate Institute of Australia (REIA) Housing Affordability Report, released in December, the average loan size to first home buyers increased by 1.5 per cent over the September quarter, to $319,633, thanks to ever-rising house prices.

First home buyers now make up just 13.2 per cent of the owner-occupier market nationally. This is the lowest representation since the Australian Bureau of Statistics (ABS) series was commenced in June 1991 and compares to the long-run average of 18.5 per cent.

All states and territories but two — Queensland and the Northern Territory — recorded decreases in first home buyers over the September quarter 2016.

Speaking of the results, Damian Percy, general manager of Adelaide Bank, likened this dwindling group of buyers to an endangered animal.

“The number of Australian first home buyers decreased by 6.7 per cent during the quarter, to 21,825 — a decline of 5.8 per cent compared to the September quarter 2015. To give this some sense of perspective, the number of first home buyers for the quarter has dwindled to a figure now equivalent to the number of lions believed to be left in the wild,” he said.

And it’s a group of lions which desperately needs to be saved from a bleak future.

“Home ownership is the third leg of the stool — along with superannuation and affordable healthcare — that enables people to enjoy a secure and dignified retirement. It is to be hoped that real solutions will emerge to the affordability issue from this gathering of treasurers, and not just agreeance to keep having more meetings.”

The rest of CoreLogic’s report, which graphs Australia’s other capital cities, will be released in the full report later this month.

WA unveils boosted first home buyers grant

From Australian Broker.

The Western Australian government has announced a temporary boost to its long standing First Home Buyers Grant, increasing the total amount from $10,000 to $15,000.

The boosted payment will apply to contracts entered into between 1 January and 31 December next year for the purchase or construction of a new home. Builders who lay the foundations for their home between these dates will also be eligible.

“Homes must be completed within certain timeframes. If you enter into a contract to build a home, construction must start within 26 weeks from you signing the building contract, and the home must be completed within 18 months after construction commences. If you are an owner builder or purchase a new home ‘off-the-plan’, including apartments, construction of your home must be completed by June 30, 2019,” said WA Finance and Small Business Minister Sean L’Estrange.

However, the focus on newly constructed homes may inadvertently affect the state’s property market, said Hayden Groves, president of the Real Estate Institute of Western Australia (REIWA).

“As an institute we’re a little concerned that the gap between established property and new property for first home buyers is getting larger,” he told ABC News.

“$15,000 is a significant amount of money. Established property in areas that are traditionally first home buyers territory will no longer be as appealing, or even less appealing as they already are, and it will therefore add to additional supply onto the market, which you can argue we probably don’t need in this current market cycle.”

Groves suggested the government also offer the same incentive to first home buyers who eventually purchase existing homes as well.

“The positive side of it is it does bring more buyers into the market and so you do end up with more activity,” he said. “Over time the first home buyer becomes the secondary buyer.”

“But certainly the immediate impact could be a downward pressure on the median house price in Perth.”

Premier Colin Barnett was more optimistic, saying the measure would stimulate the state’s property market by allowing more first home buyers to enter.

“We are conscious about housing affordability and this boost will provide more families an opportunity to get into the housing market,” he said.

He expected an additional 650 first home buyers to buy or build a new home in Western Australia as a result of the boosted grant

FHBs increasingly locked out of property

From Australian Broker.

The average first home buyer has to wait for 4.9 years to save for a 20% deposit, an increase from the 4.5 year wait of in 2011.

These figures come from the 2016 Bankwest First Time Buyers Deposit Report which compares local incomes to house prices. It examines how long FHBs in different capital cities have to wait to save the 20% deposit needed to avoid costly lenders mortgage insurance.

First home buyers in Sydney suffered the longest wait, spending 8.4 years to save the necessary amount. This was an increase from the 7.9 year period required last year and was far ahead of the 5.8 years required back in 2011.

For Melbourne, the time required again increased from 5.4 years in 2011 to 5.8 years last year and onto 6.2 years this year.

In fact, figures in all capital cities except for Perth and Darwin have been rising since 2011, creating difficulty for most first home buyers when securing their first property.

“Low interest rates, sluggish wage growth, and rising house prices are making it increasingly difficult for first time buyers to get a foot on the property ladder in most capital cities in Australia,” said Andrew Whitechurch, Bankwest’s executive general manager of retail.

“We’ve seen extremely strong growth in property values in Sydney and Melbourne, while wages have grown by just 2.2 per cent nationally.”

These financial challenges have seen the number of first home buyers in the market decrease dramatically. In 2016, FHBs made up of 13.4% total buyers which was half that found in 2009.

More Proof That Young Australians Are Choosing Property Investment Over First Home

Regular followers of the DFA Blog will know we have been highlighting the drift of first time buyers towards the property investment sector for the past couple of years. We produce this chart each month, which combines data from our households surveys and the ABS first time buyer series (which stubbornly refuses to identify FTB investors, despite the recent methodology change. The red line shows the number of FTB purchasers who go direct to the investment sector. So called “Rentvesting”.

Now two surveys, as reported in The Real Estate Daily, confirm this trend.

Both NAB’s Residential Property survey and ING Direct’s Financial Wellbeing Index show an increase in the number of young, first-time property buyers purchasing a property investment instead of a home.

The NAB Residential Property survey for the third quarter found first-home investors made up 12.2 per cent of all new property sales in the third quarter of 2016, up from 11.1 per cent in the second quarter, according to the survey.

The survey also found that first home investors represented 10.6 per cent of all established property sales, an increase from 9.7 per cent in the second quarter.

Peter Mastrioanni, of rentvesting.com.au, said the results were a sign that young people still want to invest in property, but in more flexible ways.

“First-time investors are now taking every opportunity to invest in real estate in a way that allows them to invest for reasons such as comfort instead of security, lifestyle instead of retirement, and versatility instead of restriction,” he said.

Mastrioanni said Generation Y in particular were choosing to become “rentvesters” instead of giving up on their dream of property ownership.

Rentvesting involves investing in property in more affordable locations, including interstate if necessary, while continuing to rent in the inner-city suburbs.

“This way, they’re having their property cake and eating it, too,” said Mastrioanni.

The result is backed up by ING Direct’s latest Financial Wellbeing Index, which shows a growing numbers of young buyers in the 18 to 34 age bracket are becoming property investors.

The index showed that 22 per cent of Generation Y own at least one investment property, followed by 20 per cent of Generation X and 19 per cent of Baby Boomers.

Mark Woolnough, ING Direct Head of Third Party Distribution, said concerns about housing affordability are not preventing young people from buying an investment property.

“What’s interesting is that while there are continued questions around affordability and the challenges for younger generations in getting onto the property ladder, it’s actually Gen Y that is leading the property investment pack,” he said.

First Time Buyers Caught In The Property “Jaws”

Compared with 12 months ago, First Time Buyers are caught in the jaws created by a combination of tighter mortgage underwriting standards and higher property market prices. Together these forces make  the prospect of a purchase significantly less likely.  This conclusion is drawn from our updated our household surveys. Looking in detail at the survey results:

Compared with 12 months ago, 56% of first time buyers still have the same appetite to enter the market, just 5% has a stronger appetite now, whilst 39% have a lower appetite than a year ago.

The fall is driven partly by prices continuing to accelerate out of reach, with 51% saying their target was now more out of reach than a year ago, whilst 43% said there was no real change and 6% said prices has fallen. There were considerable state and regional variations.  Prices in WA and areas of QLD are lower, whilst prices in NSW, VIC and ACT are significantly higher.

Finally, the combination of flat incomes, and tighter mortgage underwriting standards means that more than half – 58% – said they borrowing capacity had effectively been reduced. Around 40% said there was no change, and just 2% said their borrowing capacity had risen. Once again first time buyers in NSW and VIC were the most under pressure, thanks to high prices, and static incomes.

No surprise therefore that the latest ABS statistics shows the number of first time buyers continuing to languish.

Investment Home Lending Up Again

The latest data from the ABS showing housing lending to September 2016 should make the RBA reconsider its stance on housing. This is because, whilst lending for owner occupation fell slightly, property investors were strongly active again. As a result more than 38% of all new loans in September were for investment purposes. This is too high, and will continue to drive debt and home prices ever higher.

As normal we look at the trend series, which irons out monthly variations. Overall new loans worth $32bn were written, up 0.19% on the previous month. However, of that $12.2bn were for investment housing purposes, up 1.32%, whilst loans for the purchase of owner occupied established dwellings were $10.3bn, down 0.77%. Owner occupied refinance was down 0.46%, to 8bn but comprising 21% of all transactions and 34% of all owner occupied transactions. Loans for new dwellings and construction were $2.8bn, up 0.4%.

housing-sept-2016-all-flowWe also saw the mix between banks and non banks continue to shift, with the non-bank lenders higher.

housing-sept-2016-bank-v-non-bank-trendLooking at first time buyers, we see that the number of first time buyers fell again 0.5%, to 7,334 (original), which is 13.1% of all owner occupied loans. The average first time buyer loan was $324k, up 1.9%. The data also shows the proportion of fixed loan fell to 11.2%.

housing-sept-2016-ftbThe DFA household survey identified an additional 4,000 first time buyers who whet direct to the investment sector – these are not caught in the ABS first time buyer stats.

housing-sept-2016-ftb-trackerAll this explains the high auction clearance rates, and short listing times current observed, especially in the eastern states.

First home buyers are flocking to risky interest-only mortgages

From The New Daily

A leading financial services expert has described the rise in interest-only mortgages among first home buyers as “disturbing” and likely to trigger higher loan defaults in the future.

short-fuse-pic

Data published by the Australian Prudential Regulation Authority shows that more first home buyers are resorting to interest-only loans to get a foothold in the property market.

The official statistics show that the total value of interest-only loans made by Australian banks rose by $10 billion to $481 billion in the June quarter.

Historically, interest-only loans have been popular among investment borrowers, but the latest data shows that owner-occupiers now account for a larger proportion of interest-only mortgages compared to June 2015.

Dr Adrian Raftery, a senior lecturer in financial planning at Deakin University, believes the trend in the official data indicates that a time bomb might be ticking for thousands of low-income borrowers who bought into the booming property market in the last 12 months.

“There’s been a lot of brainwashing from the operators of get-rich-quick schemes encouraging investors and owner occupiers to take out interest-only loans,” Dr Raftery told The New Daily

“Brokers are also contributing to the growth of interest-only mortgages because they get bigger trail commissions from banks when borrowers take longer to reduce the principal”.

“This is a disturbing trend.”

The problem with interest-only loans is that borrowers do not build equity in their homes until their mortgage contract requires them to start reducing the principal.

First Time Buyer Numbers Lowered By ABS

The ABS has released revisions to its First Time Buyer Original data to unscramble FTBs from FTB grants. As a result, the number of owner occupied first time buyers is EVEN LOWER. At worst they were overstated by 14%.

ftb-revisions-sept-2016This underscores again the difficulty faced by this household segment, as we discussed last week. Without parental support they are finding it really tough.

However the ABS still fails to pick up the substantial number of FTBs going direct to the investment sector. They should. We run our own series using data from the household surveys.

This is what the ABS says.

The ABS publishes monthly statistics relating to first home buyers in Housing Finance, Australia (cat. no. 5609.0): Table 9a (Australia) and Table 9b (State) on the downloads tab; and in Table 9 in the PDF document. First home buyer and other ABS lending statistics are collected on behalf of the ABS by the Australian Prudential Regulation Authority (APRA).

First home buyers are defined as persons entering the home ownership market for the first time as owner occupiers. First time investors are not included.

This paper provides details on the changes to previously published first home buyer statistics as a result of improved reporting by lenders.

BACKGROUND

In 2014, it was established that some lenders were reporting only loans extended to first home buyers who had also received a First Home Owner Grant instead of all first home buyers. As this would have resulted in an underestimation of the number of first home buyers, the ABS adjusted the estimates to account for the under-reporting. The methodology used to adjust the estimates to account for the under-reporting was published in the Information paper: Changes to the method of estimating loan commitments to first home buyers, 2015 (cat. no. 5609.0.55.003) which was released on 4 February 2015.

REVISIONS TO FIRST HOME BUYER STATISTICS

The ABS and APRA worked successfully with lenders to ensure that, in the future, all loans to first home buyers are reported, regardless of whether or not they received a First Home Owner Grant. As a result, from August 2016, the number of first home buyers will no longer require adjustment as most lenders will be reporting correctly.

In the process of working with lenders, corrected historical data has been reported by some lenders and this improved data has been used to re-estimate the first home buyer statistics back to October 2012. This has resulted in revisions to the number of first home buyers for the period October 2012 to July 2016. These revisions impact on estimates for the number of first home buyers, the first home buyer ratio and the average loan size for first home buyers.

While the revised estimates show fewer first home buyers than previously reported over the period October 2012 to July 2016, the month to month movements are broadly consistent with the previously published series. For the most recent month (i.e. July 2016) the number of first home buyers in Australia has been revised down by 465 from 7,586 to 7,121.

First Time Buyers Ever More Reliant On “The Bank of Mum and Dad”

As we continue our look at the results from our household surveys, we turn to first time buyers. They are still active in the market, though struggling with high home prices and tighter lending criteria. Last month the number of owner occupied first time buyers fell.

One significant factor in the mix is the extent of help to purchase from parents or other family members – the proverbial “Bank of Mum and Dad”. More than half of first time buyers are now seeking such help, and the average value has lifted to more than $83,000. The trend since 2010 is pretty stark. Those without access to family money are at a significant disadvantage.

bank-mum-and-dad-sept-2016-smLooking in more detail at the type of help, direct assistance with a deposit now accounts for more than 40%, whilst around 20% of first time buyers receive some help to meet ongoing mortgage repayments. In contrast, the proportion of families offering a bank guarantee is falling, along with making general gifts. Others get help with general expenses, especially child care costs, or purchase transaction costs.

bank-mum-and-dad-sept-2016-2 This inter generational shift of wealth is enabled by the accumulated value gained by older households as they ride the property price boom. Some will refinance to draw capital out for their kids. Sometimes this is used to help these first time buyers to purchase an investment property.

From our surveys we also find that as many first time buyers are being driven by the expectation of future capital growth as finding a place to live. They are also aware of the tax advantages, and the relative costs of renting.

survey-sep-2016-ftb-driversNo surprise then the biggest barriers to purchase are high home prices (more than 50%) and finding a place to buy (24%).

survey-sep-2016-ftb-barriersMore than 23% say they are not sure where they will buy, though nationally a suburban house is still the first choice.

survey-sep-2016-ftb-buyHowever, in the eastern states, high prices lead to more households going for a unit, or to purchase an investment property.

survey-sep-2016-ftb-whereOur first time buyer tracker shows that a significant proportion of first time buyers are going direct to the investment sector. The ABS reported the number of OO first time buyers fell last month. In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments fell to 14.1% in July 2016 from 14.3% in June 2016. The number fell from 8,486 to 7,586, down more than 10%.  The average loan size was $335,600, 0.2% higher than last month.

home-lenidng-all-ftb-july-2016-absNext time we look at down traders.