Spring 2014 Economic Overview – Part 1 | Tim Lawless

RPData has recently released its quarterly Australian property market and economic review.

In this, the first of 4 blogs, I’ll walk you through some of our economic findings, so you can better understand the macroeconomic influences on our real estate markets.

Investor activity hovers around its highest level since late 2003

  •  In June 2014, investors committed to $10.7 billion in housing finance.
  • The level of activity by the investment segment of the market has ramped-up sharply over the past year, in June 2013 investors committed to $8.6 billion worth of housing finance indicating a year-on-year increase of 23.8%.investing
  • Investor activity has been greatest within New South Wales and Victoria.
    If we assume that the two states are a proxy for their respective capital cities (Sydney and Melbourne) we see that investor activity is mainly targeted across the two cities which are currently seeing the strongest level of home value growth.
  • This would seem to suggest that the surge in investment activity over the past year has been driven by the lure of capital gains rather than rental returns. First home buyers languish at near record low levels
  • In June 2014, there were 6,871 housing finance commitments to first home buyers. 0

First home buyers accounted for just 13.2% of all owner occupier housing finance commitments over the months.

  • The weakness from the first home buyer segment is well and truly entrenched. Over the 12 months to June 2014 there were 80,018 commitments by first home buyers which was just 12.9% of all commitments and the lowest annual figure since June 1992.
  • The lack of affordable housing available for Australian first home buyers, particularly within the major capital cities, is likely to be contributing to the low number of first home buyers despite historic low mortgage rates.


Most Australian’s have a variable rate home loan

  • Housing finance data reveals that in June 2014, 85.7% of new loans to owner occupiers were on a variable or ‘floating’ rate.
  • Unlike some other countries, Australian’s overwhelmingly prefer to take out variable rate mortgages rather than fixed rate loans. This is despite the fact that at times (such as right now) fixed rate loans can have a significantly lower mortgage rate.
  • The other factor to keep in mind is that the typical length of a fixed rate mortgage in Australia is quite short, typically being less than three years.
  • The fact that most Australian’s are on a variable rate is of great assistance to the Reserve Bank. Essentially, having a large proportion of households with variable mortgage rates means that when the Reserve Bank adjusts monetary policy it has an almost immediate impact on consumer attitudes and spending patterns.
  • When you consider that a mortgage is most people’s single largest liability changes to monetary policy have a virtually immediate impact on consumer behaviour


There has been a significant increase in dwelling approvals over the past year

  • Over the 12 months to June 2014 there have been 193,667 dwellings approved for construction, the highest number of approvals since October 1994.
  • The annual number of dwelling approvals has increased by 20.7% over the past year.
  • Although there has been a sharp rise in approvals over the year, it may be short-lived with approvals falling over 7 of the past 9 months.
  • The private sector is almost entirely responsible for new dwelling construction in Australia. This is highlighted by the fact that over the past year, 98.5% of all dwelling approvals were granted to the private sector over the past year.
  • Over the 12 months to June 2014, there were 108,598 approvals for houses and an 85,067 unit approvals.
  • Over the year, the number of house approvals has increased by 15.4% while unit approvals are up by a greater 28.2%.
  • The national data shows that there is a clear growing appetite for higher density approvals which indicates that buyers are becoming more accepting of unit product. If we look at units, they typically offer a significantly lower buy in price than houses in a comparable location and they allow the purchaser to live, in many cases, in a more desirable inner city location at a more affordable price.


More units approved for construction than houses within the capital cities

  • Across the combined capital cities, there were 69,973 houses and 74,305 units approved for construction over the 12 months to June 2014.apartments_PropertyUpdate
  • The number of house approvals increased by 21.3% over the year and unit approvals were 29.8% higher.
  • Over the past 12 months, 51.5% of approvals were for units and unit approvals have now consistently outnumbered house approvals since July 2013.
  • It is encouraging to see that there is a supply-side response to the current low mortgage rate environment however, the record high level of unit approvals does create some risks.
  • Historically, 98% of houses approved for construction result in a completion, compared to 86% of units.
  • Although demand for units is growing, units developments are less likely than houses to commence construction and complete.
  • It remains to be seen whether all these units being approved for construction ultimately end up being constructed.

Watch out for tomorrow’s blog where I cover other statistics including interest rates, unemployment levels, inflation, housing costs and more.


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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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