The Sun Is Shining on Queensland
The ABS released its Housing Finance data for September 2014.
Let’s run through the winners and losers by state and by sector in five short parts, with the construction sphere being one of the clearest benefactors from another strong month of lending.
Part 1 – Investor Loans Soar to Record Heights
The number of owner-occupier loans slipped in the month by 0.7 percent to a seasonally adjusted 51,465, suggesting that a plateau may be ahead for home buying, not least because there is so darned much investment lending taking place.
However, the value of investment lending continued to roar higher by another 3.7 percent in the month. We could quote all manner of statistics here, for this is the highest share of investment lending we have ever seen in Australia, at more than 41 percent of total lending.
But the chart pretty much tells its own story without the need for verbosity: it’s an investor-driven boom, the like of which we have not previously seen in Australia.
The gradient of the climb is now even eclipsing the post-Olympics surge in property investment – we’re heading faster and higher, sure…but stronger? That’s not yet so clear…
We will analyse out the investment loans by state on Wednesday, which will likely reveal the Sydney market surging ever onwards.
Part 2 – State by State: Sun Shining on Queensland
But for today, let’s look at owner-occupier lending. which, as we suspected and have flagged here previously, revealed another strong month for Queensland.
On a monthly moving average basis Queensland is now tracking at well above 10,000 owner-occupier commitments, a significant share of the national mortgage market and an impressive rebound of 29 percent from the state’s 2011 nadir in sentiment.
The value of owner-occupier commitments chart below is instructive, implying that owner-occupier lending has picked up strongly over the last two years in each of the four main states. Activity elsewhere has remained quite subdued.
Drilling into the detail, it appears to be Queensland that is the major winner from a state perspective. After an ordinary few years, slowly but surely homebuyer confidence appears to be returning.
No irrational or unprecedented booms to be seen yet in Brisbane, but a steady march higher.
Part 3 – Cyclicals Thriving as Construction Surges
While building approvals may now have passed their cyclical peak, the peak in construction activity still lies ahead of us, with the value of construction loans for both owner-occupiers and investors continuing to surge higher.
The construction cycle still has plenty of gas in the tank with a high volume of building approvals remaining in the pipeline, and this bodes relatively well for cyclical construction and building materials stocks (while acknowledging that to significant extent the dwelling construction boom has already been priced into share market valuations since 2012).
This cycle to date has largely been a units and apartments story, and at the present juncture it looks as though the dwelling construction surge in activity could still feasibly push through until 2017.
Part 4 – New Home Lending Breaks New Cyclical Highs
A new cyclical high here too! At least, that is how the Housing Industry Association (HIA) chose to report the data, though to be sure it depends upon precisely how you prefer to measure these figures.
Essentially, new home lending is now at or close to new highs for this cycle, for both the number of new dwelling commitments…
…and, perhaps less surprisingly, for the value of new dwellings purchased.
So that is welcome news for the economy and for the housing market.
The ABS continued to note that it has no verifiable idea of what is going on with first homebuyers, since it has no reliable data upon which to conclude.
Our experience in Sydney has certainly shown plenty of first-timers to be choosing investment property as a foothold on the real estate ladder, but the sample size of our anecdotal experiences are, impressively, even less reliable than the ABS figures.
The first-time buyer figures continue to be reported uncritically in the mass media though, which is plainly silly or deliberately misleading. Australian Finance Group (AFG) reported that 2 percent (!) of New South Wales loans written in October were for first-time buyers, one of the more clear-cut cases of not listening the data you will come across.
In short, the data reporting system needs an overall, with mortgage broker data splitting out firsthome-buyers and first-time investors from the usual owner-occupiers and investors. It could take forever to get an accurate read on that, though.
Part 5 – D.I. Why?
And, finally for today, we note that we have been much more circumspect about the prospects for the DIY sector, reflecting what we have seen in Britain, which is to say, stores closing by the truckload.
Now there has been a bubble in property renovation television shows, certainly.
Yet neatly mirroring the irrational exuberance seen in the cookery show genre, the increase in airtime for property shows has appeared at times to be almost inversely proportional to the amount of reno work that Australian folk actually do.
Thus from a macro-economic perspective, alterations and additions have continued to shave irritating fractions from GDP growth in recent quarters.
However, there is some tentative good news to report on this front this month, and that is that major renovations work has begun to rebound through 2014 in aggregate for Australia, albeit driven almost totally by what is happening in Sydney’s housing market.
So we’ll call this one as a tentative rebound for major reno activity.
But for the reasons we have noted here previously, this may not be a great decade or two ahead for the DIY sector, largely due to generational trends and respective structural shifts towards apartment dwelling, renting, buying newer suburban houses using first home-owner grants, and so on.
Summarily, it was another massive month for investment lending, which will keep the regulators on orange alert…or DEFCON 3…or whatever it is that they do or don’t do at APRA, but owner-occupier loans do appear to be hitting a plateau in aggregate.
The lending market seems to be most robust in Queensland, not least because the market is being driven by people actually buying houses to live in, an increasing novel concept in Australia.
On Wednesday we will look at which cities all those billions of dollars in investor capital are being ploughed into, but indicators and intuition indicate that the answer is likely to still be Sydney, pushing inner suburb dwelling prices higher and first homebuyers out towards the fringes (or in some cases, into becoming tomorrow’s landlords themselves).