First Time Buyers Up, Investors Down

The ABS released their Housing Finance data to May 2017 today. Overall, trend housing finance owner occupied housing commitments rose 0.4%, while investment housing commitments fell 1.5%. The trend estimate for the total value of dwelling finance commitments excluding alterations and additions fell 0.3%.

First, there was a rise in the number of first time buyers in May. The original data (no seasonal adjustments) is always volatile but the percentage rose a little to 14.0% from 13.8% in April 2017.

The month on month movements show a rise in the number of loans, up nearly 2,000 and also a rise in the number of refinanced loans.

Overlaying data from our surveys to capture investor first time buyers, we see the combined trend is rising. We expect a further kick in July when the new FTB incentives kick in.

Next we look at the owner occupied changes across the months. We see an inflection in refinanced loans, but still falling, whilst other categories of loans are relatively stable or falling slightly.

Next we look at flow by category. Owner occupied purchase of established dwellings rose the strongest, with the owner occupied construction and new purchases also up. The value of refinancing fell as did all categories of investor loans.  We can conclude the regulatory tightening and lower expectations of investors are having a cooling impact on the market. Hence all the repricing across the market we have seen in recent weeks.

Comparing the flows across new owner occupied and investment loans we see the value of the latter falling, whilst the former is up just a little.

Analysis of the more detailed splits shows the proportion of investor loans fell to below 38% and this falling trend is set to continue.  Owner occupied purchase of established dwellings rose. In trend terms, while the number of commitments for the construction of dwellings rose 1.0% and the number of commitments for the purchase of new dwellings rose 0.4%, the number of commitments for the purchase of established dwellings fell 0.6%.

Movements by lender type shows the bulk of lending is being done by the banks, although the mutuals showed a small rise.

Finally, the trend lending stock to May showed another rise, with the proportion of investor loans slipping to below 35%, the lowest since 2014.

So we can conclude that lending momentum is changing, there is clearly a focus on owner occupied refinance and first time buyers. But given the still firm auction clearance rates reported through June and July, it will be interesting to see just how weak the investment sector goes.


The Great Lending Rotation Is Upon Us

The bumper edition of ABS data today, just before the long weekend included both the housing finance data and the lending finance data for April. Investor lending is on the turn now, and first time buyers are also retreating. The question now is what will this do to house prices, and the debt burden many households are currently under?

We think this marks a significant point of rotation for the housing market. However, business lending is not accelerating, leaving a significant growth hole in the economy.

Looking at the housing lending, overall lending flows fell 0.4% in trend terms from March, to $32.8 billion. Within that owner occupied loans fell 0.1% to $19.9 billion and investment lending fell 1% to $12.6 billion.

Refinance loans fell significantly, and the proportion of loans for investment purposes also fell.

Looking at the number of commitments, overall this fell by 0.5% to 53,062, with the purchase of new dwellings down 0.7% to 44,443. Purchase of new dwellings was down 0.1% to 2,755 and the construction of dwellings was up 0.6% to 5,864.

Revisions to the data have changed the trends, with owner occupied loans stronger, and investment loans weaker.

Looking at the stock of loans, overall values were higher again.

Owner occupied loans net rose $5.7 billion, or 0.56%, whilst investment loans rose $2.1 billion or 0.39%. Both Building Societies and Credit Unions saw a net loss in portfolio value.

In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 13.9% in April 2017 from 13.5% in March 2017. The number of first home buyer commitments decreased by 17.5% to 6,547 in April from 7,939 in March; the number of non-first home buyer commitments also decreased.

There was a big fall in the number of first time buyer commitments, offsetting the rise in the previous month.

We continue to track momentum in investor first time buyers, another 4,000 joined the ranks this past month.

The ABS says that in this issue, revisions have been made to the original series as a result of improved reporting of survey and administrative data. These revisions have affected the following series:

  • Owner occupied housing for the month of March 2017.
  • Investment housing for the month of March 2017.
  • Housing loan outstandings to households for owner occupation series for the periods January 2017 to March 2017.


APRA Wriggles In Senate Probe On Housing Risk

From our friends at MacroBusiness, quoting Nathan Lynch, Asia-Pacific bureau chief, financial crime and risk, Thomson Reuters.  The video is essential viewing!

It was only the devoted, the desperate or the sleep deprived who remained in the chamber last night in Canberra when Wayne Byres, APRA chairman, buckled under a sustained line of questioning. For almost two-and-a-half hours the Senate Economics Legislation Committee had been firing questions like mortars at the country’s chief prudential regulator. By the end, Byres looked understandably fatigued.

Are Australian capital city house prices sustainable? Do they pose a systemic risk to the broader economy? Is APRA concerned that Australian households are vying with Switzerland to claim a gold medal in the global consumer-debt-to-GDP sweepstakes?

The recent data from the Bank for International Settlements is alarming, showing Australian households carrying an average of 123% debt-to-GDP.

In the measured language so well honed by prudential regulators, Byres said the risks in the Australian property market were among APRA’s highest priorities.

He said Australian housing had entered a high-risk phase due to a range of factors, including capital city house prices, household debt levels, record low interest rates and anaemic wages growth. APRA, ever vigilant, was taking action to intervene in the market to ensure that banks were not taking on excessive risks and exposing the broader economy to unnecessary systemic risks.

“The whole issue of housing and property is a big issue on our agenda. There’s a lot of discussion at APRA and a lot of discussion at the Council of Financial Regulators (with Treasury, the RBA and ASIC) about the risks. We’ve never hidden behind the fact that we are in an environment of heightened risk. Prices are high, household debt is high, interest rates are at historical lows, interest rates are low and competitive pressure is strong in the housing market. So everyone needs to be fairly careful about how they operate in this environment,” Byres said.

Nick Xenophon, the South Australian senator, wasn’t having any of it. With supportive grenade lobs from Greens senator Peter Whish-Wilson, he pressed Byres for a concrete answer to one simple question: at what point will housing debt levels trigger alarm bells at APRA?

“Do you consider that there is a point where at which the ratio of household debt to GDP becomes problematic in this country?” Xenophon asked. “Is it 200%?”

Earlier in the week John Fraser, Treasury secretary, had refused to provide a number.

“He’s a wise man,” quipped Byres, realising where this was heading.

The truth is, though few want to admit it, APRA’s alarm bells have been ringing for years. It would be an imprudent prudential regulator who suggested otherwise. The regulator’s responses simply haven’t worked.

More than two hours into the appearance Byres finally said it: alarm bells were ringing, albeit “softly”, over the accumulation of risks in the banking system.

“I’d say they’re [alarm bells] going off softly. That’s why we’ve been intervening in the sense that …” Byres said, before being cut off by questions from a feverish chamber.

It was the committee’s gotcha moment. And it went largely unnoticed.

Macroprudential mayhem

In recent years APRA has taken a number of tentative steps, jokingly referred to in the industry as “macroprudential lite”, to constrain the irrational exuberance in the property market. It’s imposed higher interest rate buffers for loan serviceability assessments, set benchmarks for year-on-year growth in investor lending and most recently took steps to constrain interest-only investor loans.

The regulator has been hamstrung, however, as these measures apply on a nationwide basis and APRA is reluctant to cripple lending in resources-linked markets such as Perth and Darwin. Behind the scenes it’s also worried about driving borrowers into the shadow banking sector, which takes lending activity outside APRA’s regulatory remit.

Despite these challenges, the message from the handful of bellicose senators last night was clear: something needs to be done about housing market risks and APRA needs to be a core part of the solution.

Some of the tools that need to be considered are hard macroprudential caps (the type the major Australian banks have been operating under in New Zealand) and lending controls targeted at specific geographical areas. APRA already has powers to impose the former and, in the wake of the latest Budget, it will soon have explicit powers to do the latter.

The politically unpalatable subtext to this discussion is that, if there is a “property calamity” in Australia, taxpayers are ultimately on the hook for these long-term regulatory shortcomings.

Housing Finance On The Slide

Latest data from the ABS for March 2017 shows that the trend estimate for the total value of dwelling finance commitments excluding alterations and additions was $33.4 billion, down 0.1%. Owner occupied housing commitments was $20.1 billion up 0.1% while investment housing commitments was $13.2 billion down 0.3%.

Within the mix, owner occupied refinance flows fell 1.1% and investment finance by individuals fell 0.5%.  In trend terms, the number of commitments for the construction of dwellings rose 0.4% and the number of commitments for the purchase of new dwellings rose 0.2%. The number of commitments for the purchase of established dwellings fell 0.1%.

Investment housing lending comprised 40% of monthly flows, refinance 18.4% (and still trending down) whilst funding for new construction continued at about 8.7%.

Total ADI loan stock grew by 0.4%, with owner occupied loans growing just a little faster than investment loans.

Investment loans comprise 35% of the total book.

The number of owner occupied first time buyers rose in March by 20.5% to 7946 in original terms, a rise of 1,350.  In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 13.6% in March 2017 from 13.3% in February 2017.

The DFA surveys saw a small rise in first time buyers going to the investment sector as their first property purchase. Total first time buyers were up 12.3% to 12,756, still well below their peak from 2011 when they comprised more than 30% of transactions.

Note the ABS has revised the data series:

In this issue, revisions have been made to the original series as a result of improved reporting of survey and administrative data. These revisions have affected the following series:

  • Owner-occupied finance from May 2012 to February 2017.
  • Investment housing finance from July 2013 to February 2017.
  • Housing loan outstandings to households for owner occupation series for the periods May 2016 to January 2017.

The number and value of commitments for the purchase of newly erected dwellings have been revised for the period May 2012 to June 2013, and consequentially the number and value of commitments for the purchase of established dwellings have been revised for the same period.


Housing Finance Still Growing

The latest data from the ABS on Housing Finance to February 2017 shows that overall finance continued to grow.

The trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.4%. Investment housing commitments rose 0.7% and owner occupied housing commitments rose 0.2%. [DFA NOTE: They include owner occupied refinance in these numbers]

In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions fell 2.7%.

But within the moving parts there are interesting observations – as usual we will focus on the trend series, which irons out some of the statistical bumps, though others will rush to comment on the 13% fall in investor loan flows from the previous month.

But looking first at ADI loan stock, overall balances rose 0.44% in the month to $1.57 trillion. Investor loans comprise 35% of the total, just down a little, in original terms.

Turning to the trend lending flows, total flows grew by 0.38% compared with the previous month, up $128 million. Within that, refinance fell to 18.7% of flows, down 0.83% or $50 million, owner occupied loans rose 0.65%, up $89 million and investment loans rose 0.69% or $91 million.

The main rise in the owner occupied sector was the purchase of established dwellings, whilst funding for new purchases and construction both fell a little. All categories of investor lending rose.

The HIA highlights that

the number of loans to owner occupiers constructing or purchasing new homes during February 2017 rose in just two states – South Australia (+6.5 per cent) and Queensland (+3.7 per cent). Compared with a year earlier, the largest reduction in lending volumes affected the Northern Territory (-63.8 per cent), followed by the ACT (-23.4 per cent) and New South Wales (-9.7 per cent). There were also falls in Western Australia (-8.7 per cent), Victoria (-2.0 per cent) and Tasmania (-1.7 per cent).

Looking next a first time buyers, the number of transactions rose in the month, in original terms up 7.5% to 6,596, or 13.3% of all transactions, still below previous peaks and lower than last month.

Our surveys also identified another 4,600 first time buyers going direct to the investment sector, so overall volumes are higher than the official figures suggest.

Looking at the movements, month on month, the number of FTB rose, with an increase of 460 over the previous month. Fixed rate lending compared with all transactions was down.

Investors Boom, First Time Buyers Crash

The ABS released their Housing Finance data today, showing the flows of loans in January 2017. Those following the blog will not be surprised to see investor loans growing strongly, whilst first time buyers fell away. The trajectory has been so clear for several months now, and the regulator – APRA – has just not been effective in cooling things down.  Investor demand remains strong, based on our surveys. Half of loans were for investment purposes, net of refinance, and the total book grew 0.4%.

In January, $33.3 billion in home loans were written up 1.1%, of which $6.4 billion were refinancing of existing loans, $13.6 billion owner occupied loans and $13.5 billion investor loans, up 1.9%.  These are trend readings which iron out the worst of the monthly swings.

Looking at individual movements, momentum was strong, very strong across the investor categories, whilst the only category in owner occupied lending land was new dwellings.  Construction for investment purposes was up around 5% on the previous month.

Stripping out refinance, half of new lending was for investment purposes.

First time buyers fell 20% in the month, whilst using the DFA surveys, we detected a further rise in first time buyers going to the investment sector, up 5% in the month.

Total first time buyer activity fell, highlighting the affordability issues.

In original terms, total loan stock was higher, up 0.4% to $1.54 trillion.

Looking at the movements across lender types, we see a bigger upswing from credit unions and building societies, compared with the banks, across both owner occupied and investment loans. Perhaps as banks tighten their lending criteria, some borrowers are going to smaller lenders, as well as non-banks.

We think APRA should immediately impose a lower speed limit on investor loans but also apply other macro-prudential measures.  At very least they should be imposing a counter-cyclical buffer charge on investment lending, relative to owner occupied loans, as the relative risks are significantly higher in a down turn.

The budget has to address investment housing with a focus on trimming capital gain and negative gearing perks.  The current settings will drive household debt and home prices significantly higher again.

RBA Warns on Housing – Sort of…

Hidden away at the end of the 62 page Statement on Monetary Policy is a gem of a paragraph relating to housing. I think this is the first warning I can remember on the subject, as up to now the RBA has been remarkable bullish. Will this mean the regulators efforts to control the risks be accelerated?

Housing prices have picked up over the second half of 2016, most notably in Sydney and Melbourne. This could see more spending and renovation activity than is currently envisaged.

On the other hand, a widespread downturn in the housing market could mean that a more significant share of projects currently in the residential construction pipeline is not completed than is currently assumed. While this is a low-probability downside risk, it could be triggered by a range of different factors.

Low rental yields and slow growth in rents could refocus property investors’ attention on the possibility of oversupply in some regions.

Although investor activity is currently quite strong, at least in Sydney and Melbourne, history shows that sentiment can turn quickly, especially if prices start to fall. Softer underlying demand for housing, for example because of a slowing in population growth or heightened concerns about household indebtedness, could also possibly prompt such a reassessment.

Now, you can read this a couple of ways, first it is a low-probability – they say, so not to worry. Or could it be that this is a way of getting housing expectations reset.

We have been highlighting potential risks in housing thanks to low income growth, sky-high debt and rapid growth in the investment sector at a time when rental yields are under pressure.

At very least it seems the housing expectation sails are being trimmed, and should things go bad later, the RBA can point back to the “I told you so” paragraph.

Lets see if the regulators get their act together now, though it is late in the day!


Home Lending Roared Away In December

The ABS data on home finance for December 2016 confirms what we already knew, lending momentum was strong. But now we see that the number of OO first time buyers were down, whilst investment lending was strongly up.

Overall lending flows were up 0.8% in trend terms to $33.2 billion, with owner occupied loans up 0.23% ($20 billion) and investment loans up 1.68% ($13.2 billion). As a result, investment loans were 39.79% of all loans written in the month! Much of this went to the NSW market, where demand is hot, and prices are up.

Within the owner occupied data, refinancing of existing loans fell, down 1.23% to $6.38 billion, whilst other OO lending grew 0.93% to $13.6 billion. The largest percentage swing was borrowing for new dwellings, up 1.49%.

Given rates are now on the rise, we expect refinance volumes to continue to slide.

Looking at the original first time buyer data, there was 7% fall in the number of first time buyer OO loans written, down to 7,690; whilst investment loans by first time purchasers (not captured by the ABS as a separate category) is estimated to be up 1.4% to 4,236 based on the DFA household survey data. Many purchasers are going straight to the investment sector.  The average loan was $319,000 for FTB and $384,000 for other borrowers.

Finally, the original stock data shows overall loan growth on ADI’s books rose 0.67 (which if repeated for a year would equate to 8%!), way above inflation, so no wonder household debt is still building. The investment loan book grew 0.63% or $3.4 billion, whilst the OO book grew 0.7% or $7.0 billion. The total ADI book was worth 1.56 trillion and investment loans made up 34.91% of the book in December.

Investment Loans Stronger In October

The latest housing finance statistics from the ABS, to October 2016 shows continued growth in investment mortgage lending, whilst owner occupied momentum slowed. In the month and in trend terms, $32 billion on new loans were written, up 0.25%. Within that, owner occupied flow fell 0.5% to $19.7 billion, whilst investment loans grew 1.5%, to $12.5 billion. Investment lending comprised 33.8% of all loans, up from 33.3% the previous month.

33.8% of owner occupied loans were a refinance of existing loans. 12.8% of loans were fixed rate, up from 11.2% last month – reflecting the low rate fixed offers which were available at the time.

Looking at the segmentals, owner occupied lending for construction rose 0.06% to $1.8 billion, purchase of new dwellings fell 0.17% to $1 billion, refinance of established dwellings fell 0.74% to $6.6 billion and purchase of established dwellings fell 0.5% to $10.2 billion.

On the investment side of the ledger, construction of new investment dwellings fell 0.46% to $842 million, purchase of property for investment by individuals rose 2.11% to $10.6 billion and purchase by other investors rose 0.45% to $1 billion.

Looking at ADI loan stock, in original terms, total loans grew by 0.61% in the month, up $9 billion. Investment loans rose 0.5% or $2.7 billion and owner occupied stock rose 0.67% or $6.7 billion.

Turning to first time buyers,the volume of new owner occupied loans to first time buyers remained around 7,300, but because the number of non-first time buyers fell, it rose to 13.7% of all loans, up from 13.1%. The average loan size for first time buyers rose to $327,000, up 1% from last month, whilst the average non-first time buyer loan is $380,000, up 1.6%.

Looking at the DFA survey data we saw a slight fall in the number of first time buyers going directly to the investment sector, but another 4,000 joined the property investor ranks in the month.

Finally, looking at the state-based data in trend terms, the largest falls in owner occupied loans were in NSW (down 1.2%) and ACT (down 2.1%). Tasmania was the only state to see a rise – up 0.7%.


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.