May Investors Fuel Another Surge in Home Loans – More to Come

Investors continue to re-engage our housing markets after a lengthy period of underperformance and are driving overall residential lending to new record heights.

Latest ABS data reveals that the value of total home lending seasonally adjusted increased by 4.9% over May to yet another record high of $37.89 billion.

The May increase was the highest since January with home loans now a remarkable 62.6% higher over the first 5 months of this year compared to the same period in 2020.

Loans approved to investors surged over May – increasing by 13.3% to $9.13billion and the highest monthly total since June 2015.

By comparison, loans to owner-occupiers reported more modest increases, higher by 2.5% - with first home buyer lending also increasing by 2.5% over the month.

Although investor lending has increased sharply over recent months, the total market share for this group remains well below long-term levels.

The investor share of total residential lending over May increased to 24.3% but well below the long-term average of 32.9%.

Owner-occupier market share, although falling to 57.8% over

the month, is still well ahead of the 52.8% long-term average.

Similarly, the first home buyer market share was down to 17.7% but still higher than the 14.3% long-term average for this group.

Booming house prices will continue to attract investors which will add demand to housing markets that are now providing signs of coming off peak growth rates.

Although rising affordability barriers will act to side-line owner-occupiers – particularly first home buyers, investors generally do not face the same constraints.

NSW Leads Investor Market Revival

Investors are surging back into housing markets, keen to take advantage of recent record-level national prices growth.

All state markets have reported significant increases in investor activity over the past year - albeit from record low levels, with NSW leading the charge - as usual.

The ABS reports that NSW recorded 20,602 loan approvals over the first 5 months of 2021, well ahead of VIC with 17,465, QLD 13,389, SA 4,123, and WA 4,823.

NSW also reported the highest total market share for investors over May at 28.9% again well ahead of the next highest QLD at 24.1% then VIC 22.9%, SA 20.6% with WA well behind at just 15.1%.

No surprise that NSW recorded clearly the highest average investor loan over May at $713,089 and clearly reflecting access to the high-priced Sydney market.

This was more than $150,000 higher than VIC at $553,575 with QLD $459,172, WA$431,822 and SA $363,996.

Although gross rental yields are falling as a result of sharply rising prices in most capital city markets, investor activity is set to continue to surge in most markets driven by certain self-reinforcing prospects of further capital growth.

Victoria Still No 1 for First Home Buyers Over May

While first home buyer activity continues to decline it must be remembered that the current underlying levels remain second only to the record results established in the autumn of 2009.

The ABS reports that first home buyer loans seasonally adjusted fell marginally by 0.8% over May - the fourth monthly consecutive fall inactivity.

The number of loans approved for first home buyers over the first five months of this year however remains a remarkable 65.4% higher than recorded over the same period last year.

VIC continues to report the highest number of first home buyer loans of all the states with 4,729 recorded over May followed by NSW 3,454, QLD 2,760, WA 2,208, and SA 895.

NSW however was the clear leader for the average first home buyer loan recorded over May at $560,365 and well ahead of the next highest VIC $470,861, QLD $393,804, WA $364,266, and SA $352,402.

All states with the exception of WA reported record monthly average home loans over May.

Ongoing sharp increases in house prices, fewer government incentives, and strongly rising investor activity will continue to dampen first home buyer activity over coming months – although the average home loan required to access the market will likely continue to increase - particularly in NSW.

Fewer First Home Buyers Over May - but Paying More

The number of first home buyer transactions continue to decline as higher prices and reduced government incentives act to increase affordability barriers and restrict housing market access.

The ABS reports that the number of loans approved for first home buyers seasonally adjusted fell marginally over May – down by 0.8%.

The May result was the fourth consecutive monthly decline in first home buyer activity with current levels now 7.4% lower than the recent peak of 16,257 recorded over January.

Although first home buyer numbers continue to decline, the average value of loans approved to this group continues to increase.

May recorded an average first home buyer loan of $455,375 that was 3.3% higher than the previous month and 4.9% higher than reported over May 2020.

The May result was also a new monthly record for average loans for first home buyers.

Despite the gradual decline in first home buyers this year so far, underlying levels remain elevated and second only to the record results reported through the autumn of 2009.

First home buyer activity remains a remarkable 65.4% higher over the first five months of this year compared to the same period in 2020.

Continued sharp increases in house prices and strongly rising investor activity will however continue to dampen first home buyer activity over the coming months.

About Dr. Andrew Wilson Dr Andrew Wilson, Chief Economist of www.MyHousingMarket.com.au is widely regarded as Australia’s leading property economist.