Housing demand focused on new housing and investment while first timers fall off a cliff

The latest housing finance data from the ABS painted a pretty dim view of housing demand, with the headline figures showing a seasonally adjusted fall in the number of owner occupier housing finance commitments of 1.5% in January following an adjusted 2.1% fall in December.

This was the fourth consecutive month where the total number of owner occupier loan commitments has fallen.

While the latest data indicates housing credit demand remains soft, digging below the surface shows that demand for housing credit has been being growing at a cracking pace for the purchase of new housing (+27.7% year on year and 9.6% higher than the five year average over the full 12 months) and investor demand is ramping up quite swiftly as well.

Before going into the details, it’s useful to have a refresh on what the ABS housing finance data includes and doesn’t include.

The headline figures for the number of commitments include data on owner occupier loans only (investor loans aren’t included in the counts which is a real weakness in the ABS data series).

This data is further segmented across four categories as shown in the pie graph below:  commitments for established housing (excluding refinanced loans), refinanced loans for established housing, commitments for the purchase of new dwellings and commitments for the construction of a new dwelling.

As you can see below, housing finance commitments for established dwellings comprise, by far, the largest proportion of owner occupier commitments.

With such a large proportion of activity in this segment (about 86% of all commitments over the past year), the headline figures for housing finance commitments are very much dictated by what is happening in this space.

Looking at each of the above categories individually shows some interesting trends across the segments.

Finance commitments for established housing, excluding any refinanced loans, were relatively flat over the year, falling by 0.8% compared with January 2012.

The number of new loans for established housing is continuing to track at historically low levels; over the year to January 2013 the number of commitments was 10.7% lower than the five year average. The soft performance in credit demand for established housing is the primary reason why the overall housing finance commitment numbers remain so weak.

We haven’t seen housing finance commitments for established housing remain this low consistently since the mid 90’s.

New housing finance commitments for the construction of new dwellings have remained relatively flat (+1.9% year on year but -4.6% below the five year average) after spiking through late 2008 and most of 2009 in response to the first home buyers grant boost which provided $21,000 incentive for first home buyers of new dwellings or constructing a dwellings.

Loans for new homes have surged over the past twelve months, increasing by almost 28% over the year and tracking 9.6% higher than the five year average over the twelve months ending January 2013.

The surge in demand for finance related to newly developed housing is arguably the most positive indicator to come out of the ABS housing finance data.

The surge in lending activity across this segment of the market suggests that the stamp duty concessions which are available for across most states for new homes are providing some stimulus for this sector of the market.

It also may indicate that purchasers prefer to buy newly built homes rather than engage in what can often be the time consuming and difficult process of choosing to construct a home.  This would also be reflective of a growing proportion of units being purchased as opposed to vacant land on which a home is then constructed.

The owner occupier housing finance data is also segmented by first home buyers and non-first home buyers. This portion of the data shows that first home buyers are becoming increasingly thin on the ground, representing just 14.9% of all owner occupier commitments (the lowest ratio since June 2004).

The number of first home buyer loans has fallen by 28% year on year to January 2013 and on an annual basis, first timer loans were tracking 21% lower than the five year average.

The low level of first home buyer finance commitments probably also reflects the fact that the first home owners grant is only available in some states for new builds which would result in a pushing out of the finance commitment because only a deposit is required up front.

It’s safe to say that first home buyer demand was substantially brought forward due to the grant top ups that were available from the Federal Government in 2008 and 2009 as well as by the state level stamp duty concessions that were generally available for established dwellings (which have now reverted to being available for new homes only).

Data about investment related loans is comparatively scant in the ABS housing finance data.

There are two tables in the release that contain information about investment lending: table eleven which reports on the value of housing finance commitments for owner occupiers and investors, and table 12 which reports on housing loans outstanding.

The value of investor related housing finance commitments has seen a decent surge since August last year.

Year on year growth in the value of investor finance was recorded at 18.6% in January and total value of investor housing commitments was tracking 2.4% higher than the five year average over the past twelve months.

Based on the January data, investors now comprise 36% of the value of all housing finance commitments, well above the five year average of 33.6%.

Clearly investors are viewing the housing market in a much more positive light, which should come as no surprise considering the recent correction and measured recovery in values and the higher yield environment.

So, while at face value the number of new mortgages being committed to looks pretty bleak, there are some shining lights in the data.

The increasing level of demand for new homes should provide some flow through benefits to the housing construction sector which is desperate need of a health injection.

Additionally, the increasing level of investor activity is also a positive sign that housing market sentiment is improving across this important sector of the market which will also lead to an uptick in rental housing at a time when vacancy rates remain low.



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Tim Lawless


Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au

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