CoreLogic – 10 November, 2015
Bu Cameron Kusher
http://blog.corelogic.com.au/2015/11/investor-housing-demand-continues-to-fall-sharply/
The Australian Bureau of Statistics (ABS) released housing finance data for September 2015 earlier this week.
The broad housing finance trends show that demand from the owner occupier segment of lending is falling while demand from investors fades. Of course since late December last year we have seen limits come into effect regarding annual investment credit growth as well as, more recently, higher interest rates for all investment borrowers and lower loan to value ratios for many. Given these changes it is no real surprise that demand from this market segment is falling; there is less investment borrowing to be had and lower LVRs mean that for many borrowers negative gearing becomes somewhat less attractive. On the other hand, demand from owner occupiers is rising, largely from upgraders and those refinancing while there is little sign that first home buyer demand is rising. Much of the recent refinance activity has subsequently translated into eventual housing investment, it will be interesting to see if the current refinance activity is just home owners shopping around for a better mortgage deal or if it will start to flow to investment in other asset classes.
Looking more closely at owner occupier lending, the seasonally adjusted data shows that there was $21.0 billion worth of commitments in September 2015. This represented a monthly increase of 3.0% and a year-on-year rise of 23.1%. The $21.0 billion consisted of $1.8 billion in lending for construction of dwellings, $1.3 billion in lending for purchase of new dwellings, $6.7 billion in lending for refinances and $11.2 billion in lending for purchase of established dwellings. Each of the four components of owner occupier housing finance commitments have increased over the month with most having increased year-on-year. Year-on-year, the changes have been recorded at -1.3% for lending for construction of dwellings, +32.1% for lending for purchase of new dwellings, +30.0% for refinances and +23.0% for purchases of established dwellings. Clearly owner occupier demand is rising however, the ABS does note that ADIs are currently making changes to lending classifications which are seeing more investor loans classified as loans to owner occupiers. This will be contributing to a proportion of this rise, how big that proportion is we are unsure.
In September 2015 there was a seasonally adjusted $12.3 billion worth of housing finance commitments to investors, this was the lowest value of investor lending since August 2014. The monthly value of lending to investors has fallen by -12.8% from its peak of $14.1 billion in April 2015. The $12.3 billion figure consists of $0.6 billion in lending for new construction which is the lowest level in a year and $11.7 billion in lending for established homes which is the lowest level since August of last year. Lending for new construction tends to be volatile however, it has fallen by -42.2% from its recent peak of $1.1 billion worth of commitments in December 2014. The less volatile investment lending for established homes has fallen by -11.0% from its peak of $13.1 billion in April 2015. Again, recent reclassifications of lending by ADIs will be contributing to some of the recent weakness however, a changing investment lending landscape is undoubtedly the most significant contributor.
The latest housing credit data shows that the annual rate of investor credit growth still remains above 10% (10.4%) so it is reasonable to expect that investor housing finance commitments will continue to fall over the coming months. With the rate of value growth slowing, higher interest rates and lower LVRs for many investors, the attractiveness of purchasing an investment property is also easing. While investment lending has been cooling down, owner occupier lending has been rising however, much of the rise is due to upgraders and refinances. We anticipate that this trend is likely to continue although probably not rising by the same magnitude as we’ve seen over recent months. Furthermore we anticipate that less of the refinance activity is going to flow back into housing in the form of investment purchasing.
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