CoreLogic reported that a surge in national dwelling values is being spurred on by investors making a market comeback!
Interest rate cuts and the return of lending to investors over the past year have been the catalyst for increased investor interest according to CoreLogic, and were confirmed in the January 2017 housing finance data released last week by the Australian Bureau of Statistics (ABS).
Pairing the housing finance data with the Reserve Bank’s (RBA) lending aggregate data provides deeper insight into housing investor behaviour.
Over the month of January, the data confirmed that housing finance data showed that investors committed to a total of $13.8 billion in finance for investment properties – this represents a 4.2% rise over the month and a 27.5% increase year-on-year (the largest annual increase since August 2014).
As highlighted in the adjacent chart, the value of investor housing finance commitments remains below its previous peak but has ramped-up significantly over the past 12 months.
In fact, the value of investor housing finance commitments in January 2017 was just -5.3% lower than its historic peak in April 2015.
Investor housing finance commitments is clearly flowing to established homes rather than new homes.
This isn’t really a surprise when you consider that the amount of established housing stock is substantially greater than new stock and new housing typically has a price premium over existing stock.
Over the month, $1.2 billion in commitments were for new construction compared to $12.6 billion for established housing stock.
Data published by the RBA on investor housing credit (refer adjacent chart), represents the total amount outstanding to mortgage lenders for the purposes of investor housing.
In January 2017, investor credit expanded by 0.6% to be 6.6% higher over the year.
The monthly change was actually the lowest it has been in four months while the annual change was the highest it has been in 10 months.
Much like the housing finance data, the credit data shows the impact of APRAs recent curbs to investor credit growth which have slowed growth however, more recently credit has once again started to expand.
Research by CoreLogic looking at the value of outstanding investor credit to Australian lenders shows that at the end of January 2017, the RBA reported that there was $572.2 billion in investor credit outstanding to Australian lenders.
This figure accounted for 34.9% of all housing credit outstanding ($1.637 trillion) and 21.5% of total outstanding credit.
This shows a significant rise in investor housing credit, in fact, two decades ago investor credit represented 21.8% of total housing credit and 8.7% of all credit.
With the substantial increase in dwelling values in Sydney and Melbourne over recent years, home owners are able to utilise the equity in their principal place of residence to purchase investment properties.
However, while investor activity is rising, the proportion of total housing finance commitments to owner occupier first home buyers is at an historic low.
Over the coming months we expect to see further tightening of lending policies to investors with some lenders approaching APRAs 10% speed limit.
Should this occur it is likely to result in a moderate slowing of demand from the investment segment, at least temporarily like we saw in mid-2015 and early 2016.