Will the housing boom spread to other states? | Pete Wargent

The total value of Housing Finance was a fraction lower in August than in July doubtless leading to the usual in-depth ‘analysis’ accompanied by absurd “sell your home!” type of general financial advice.

Of course monthly data doesn’t keep rising in a straight line, and in fact housing finance data looks pretty robust.

Over the past decade the median house price in Australia has increased by around 4.8 percent per annum and the median unit price about 4.2 percent each year, so it hasn’t been great advice to date.

Besides, given what we have seen with volatility in the jobs data over the last month I also reckon you need your head read if you are planning on taking any major life decisions based on one month of ABS data right now.

Moreover, if you don’t look at the monthly housing finance data in its broader context, you will continue to misinterpret it, as pundits have been doing continually for the past decade.

Let’s take a quick look in just a small amount of further detail below in five very short parts.

Part 1 – Macro picture

There were 51,787 owner occupier commitments written in August, down from 52,251 in August.

Is the trend rolling over? It might well be, yes, although that figure remains 5 percent higher than a year ago. It seems that we may well now be seeing a rotation towards Queensland which we will explore in a little more below.

Rolling 12m owner occupier loans

The below chart is what I mean about taking the data in its context. We will analyse the investment housing loan data by state next week, which the Reserve Bank will also be taking a keen interest in.

On a rolling annual basis the value of owner-occupier commitments is 15 percent higher than a year ago and rising, although the uptrend now seems likely to soften.

Rolling 12m loan value by purpose

Part 2 – Construction loans

Obviously most people who buy a house choose one which is already built, but if the RBA wanted to stimulate construction in order to re-balance the economy then it has done exactly that – construction activity is ramping up very nicely, with the PCI (construction) index hitting a 9 year high this week.

Rolling 12m owner occupier loans by purpose

On a rolling annual basis the value of construction loans for owner occupiers and investment housing have roared 18 percent and 30 percent higher respectively.

That’s lovely to see and conclusive proof that low interest rates would always go on to stimulate higher pries and then construction (easing rental growth will follow next), reflective of a functioning market. despite the nay-saying.

Rolling 12m construction loans

Part 3 – By state

The owner occupier loan commitments by state show that New South Wales has been the main driver of activity over the past year rising, up by 13 percent.

[sam id=40 codes=’true’]

However, people waiting for the boom to flow out to the rest of Australia as if by some kind of divine law of real estate appear likely to be disappointed.

At this stage almost all of our data sets suggest that an ex-Sydney housing boom is unlikely to happen at all in this cycle.

Owner occupier commitments in August softened a little almost everywhere including New South Wales, Victoria, Western Australia, South Australia, Tasmania and the Australian Capital Territory (the Northern Territory is a law unto itself, and with the levels of stock on market threatening to rise quickly in Darwin, it would pay to be wary of that particular market).

But there was one notable exception to the soft data…Queensland, where owner occupier commitments continued to increase in August.

Activity is clearly now shaping upwards in the Sunshine State, with the value of owner occupier commitments some 15 percent higher than one year ago.

Brisbane in particular looks set to fare well through 2015 after a very lean 5 or 6 years variously impacted by flooding and confidence issues (as evidenced by the green line in the chart below).

Rolling 12m housing finance

Part 4 – New homes

Activity levels for new dwelling commitments are now grinding higher again, having previously stumbled.

3m ma - new dwelling commitments

The dollar value of financing for new dwellings remains reasonably strong, gaining 2.5 percent in the month of August after a bit of a blip in recent months.

Rolling 12m - finance for new dwellings

Part 5 – Last but not least…major renovations

Last but not least, the increase in dwelling prices this year has not been driven by improvements to the established housing stock, with the real value of renovations in a general decline.

With the September data still to come, this moribund level of renovation activity looks likely to shave a fraction from GDP in the third quarter’s Australian National Accounts.

Rolling 12m alts&adds

Summary – prospects look bright for Bris

Overall, it’s a decent set of numbers with promising signs of strength in new home loans and construction – the desired “rebalancing” – but owner occupier activity has highlighted the possibility of softening almost everywhere except for Brisbane and Queensland.


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Pete Wargent


Pete is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. Using a long term approach to building businesses, investing in equities, & owning a portfolio he achieved financial independence at the age of 33. Visit his blog

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