The Australian Bureau of Statistics (ABS) released housing finance data for March 2014 earlier today.
The data showed that the number of owner occupier housing finance commitments fell by -0.9% in March. In value terms, lending to owner occupiers was -1.2% lower over the month and lending to investors was down -0.8%.
Looking at the break-down of housing finance commitments by value over-time, you can see that on a 12 month average basis, the greatest proportion of lending over the past year has gone to investors (37.7%) followed by: owner occupier subsequent purchasers (non-first home buyers) (36.7%), refinances by owner occupiers (17.6%) and owner occupier first home buyers (7.9%).
As the above chart shows, investment lending is at its highest level in a number of years and there has previously only ever been one period where investment lending was greater than lending to subsequent purchasers.
The proportion of lending to first home buyers is at a record low, accounting for an average of 7.9% of the value of finance commitments over the 12 months to March 2014.
Turning the focus to the monthly data on the number of owner occupier housing finance commitments, as mentioned these were -0.9% lower with refinance commitments down -1.0% and non-refinance commitments falling -0.9%.
Despite the monthly fall, as the above chart shows, both refinances and non-refinances are trending higher albeit non-refinances in particular remain well below historic average levels.
Over the month, owner occupier housing finance commitments to first home buyers increased by 12.2% which was the largest monthly rise since May 2012.
Despite the monthly rise, first home buyer commitments remain slightly lower than a year ago (-0.8%). As a proportion of total owner occupier finance commitments, first home buyers accounted for 12.6% of commitments in March, up from 12.5% in February but down from 14.1% in March 2013.
The total value of investment housing finance commitments fell by -0.8% in March 2014 however, it has increased by 27.9% year-on-year.
As mentioned, the proportion of investment commitments has, on average, been higher than owner occupier subsequent purchases over the past year.
In March, investment finance commitments accounted for 39.1% of total finance commitments. The level of investment activity remains at a level which is well above average and of a magnitude not recorded since late in 2003.
Although it is hard to bed down any timely and accurate statistics on overseas buyers it is important to note that if foreign buyers are purchasing with funds sourced from abroad, they are not captured in these figures.[sam id=43 codes=’true’]
With the level of investment remaining stubbornly high, it is no wonder that the Reserve Bank continues to repeat its warning that housing in Australia is not a one-way bet.
Obviously low mortgage rates coupled with strong value growth, particularly in Sydney and Melbourne is attracting the attention of investors.
The potential challenge will be what happens next with investors once value growth slows and mortgage rates rise. The last time we saw investment activity at these levels we also witnessed a marked slowdown in value growth nationally.
As an example, in Sydney, values began falling shortly thereafter and values took five and a half years to return to their previous peaks. Investors jumping into the market at this time should definitely bear this in mind.
Overall, the monthly read on housing finance data was weak, however, the trend shows that demand for finance is continuing to escalate.
In particular, investors and upgraders are really driving the housing market at the moment. However, the level of activity by owner occupiers purchasing homes (as opposed to refinancing) remains well below average levels. Obviously the rise in investment lending is to some extent restricting the level of lending to owner occupiers.