Housing loan approvals remain high as investor activity gains momentum

New ABS Lending Indicators data released today shows new home lending experienced a small decline in February 2021 from the month prior, but lending still remained up on last year.

The total value of new home lending dipped for the first time in 9 months, by 0.4% in February to reach $28.64 billion.

Yet new housing commitments remained 48.8% up at the same time last year before the impact of the pandemic was felt in the property market.

Contributing to the monthly decline was a 1.8% fall in owner-occupied lending and a more modest increase in investment lending.

Over recent months investor activity has started to rebound, with the rise continuing into February (investor approvals +4.5% m/m and +31.6 % y/y).

Despite the slight fall, housing loan approvals remain well above pre-COVID levels at 48.8% y/y

There was also a flurry of refinancing activity, with a 10.5% rise in mortgage holders switching to a new lender in February. 

What does all this mean?

Canstar Group Executive, Financial Services, Steve Mickenbecker commented on the latest data:

“The value of lending to new homeowners is marginally down on last month, which could be spurred by the outlook for jobs with the impending end of JobKeeper, but the number is still up 48.8% from a year ago,

“First home buyers are making up 35% of new lending, which is proving to be a driving force in the market for the first time in years. There is developing terror that prices are moving away from them and the modest decline in new lending from last month suggests this is happening.

“The return of investors to the fray of the property market accelerated in February. They have clearly become convinced that upward property price movement is a confirmed trend with plenty of upside.

“The market looks set for a repeat of 2017 with investors and first home buyers competing for what housing stock is available.

“Construction lending is again at record levels as people rush to take advantage of HomeBuilder and state incentives before they run off at the end of March.

“This is still a very hot property market. Real estate stock is racing off the shelves and estate agents are on the streets soliciting new listings with the enticement of prices homeowners have never dreamed of.  Buyers are increasingly forgoing the comfort of finance clauses and building inspections to give themselves an edge over the ever-present competing offers.

“The pace and magnitude of the property market recovery will have caught policy makers by surprise. Low interest rates and incentives have proven to be a potent mix in kick-starting the recovery and there is no obvious shock on the horizon likely to be more than a speed bump.

“The resurgence of refinancing is not surprising with so many loans available now with interest rates below 2% and cashback incentives.”

HIA’s Chief Economist, Tim Reardon commented:

The number of loans for the construction of a new dwelling rose in February marking six consecutive months of record highs.

The number of construction loans to owner occupiers in the three months to February 2021 is 43.0 per cent higher than the previous quarter and is two-and-a-half times higher than the same time last year.

Lending for renovations also rose further, reaching its highest level since 2009. The value of loans for alterations and additions in the three months to February 2021 is 47.6 per cent higher than the same time last year.

First home buyers are riding the HomeBuilder wave, accounting for over 40 per cent of loans over the last seven months. This is the strongest share for first home buyers since the stimulus associated with the GFC.

Demand for new housing has been surging since mid-2020 due to a combination of the HomeBuilder program, record low interest rates and the shift in populations away from apartments and capital cities towards detached housing and regional areas.

Households have changed their spending habits in response to the COVID-19 interruptions. Many have diverted funds that would have typically been spent on travel and entertainment into buying a new home or improving their existing one.

This data provides further evidence of the exceptionally strong volume of new homes that will commence construction in 2021 as well as record level of expenditure on renovations,”

RateCity.com.au research director, Sally Tindall, said it was a surprise to see a home lending drop in February, as property prices continued to soar.

“The February home lending results bucked the trend, dropping for the first time since May 2020, but it was on the back on a record-breaking January.

Year-on-year home lending is still up nearly 50 per cent.

The records had to stop being broken at some point.

This month’s overall dip in home lending is unlikely to be a sign things in the property market are cooling down.

Investors continued to make their comeback this month looking to capitalise on the predicted property price boom forecast for the next two years.

There’s no question the market is still booming but some first home buyers have already been priced out. This could account for the drop in the value of first home buyer loans this February."

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About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.