Home loans lift but first home buyer share at record lows

Home loans lift: The number of new owner-occupier housing loans rose by 4.4 per cent in September, the eighth increase in the past nine months. The value of all home loans rose by 5.3 per cent to record highs.
First home buyers accounted for just 12.5 per cent of all loans – the lowest reading in records going back 23 years.

The housing data has implications for banks, building and building material companies.

What does it all mean?

The housing sector is fast becoming the shining light of the Australian economy. And with interest rates low, population rising and housing affordability still attractive, housing is best placed to take over the leadership role from mining as the nation’s key economic driver. The lift in housing approvals, rising new home sales, higher house prices will support confidence and provide policymakers with a degree of encouragement moving into 2014.

But while investors are keen to pick up attractive income-producing assets, first home buyers are still reticent to wade in. Despite some of the most attractive buying conditions in years, the proportion of first home buyer loans is holding at the lowest level on record. There is anecdotal evidence that some first home buyers are being squeezed out by investors given tight housing supply. But the lower numbers of first home buyers also reflects the preference for young people to rent, rather than buy.

While the rise in overall housing finance is positive, the key is the new home building market and the increase in construction loans is the jewel in the crown. Loans to build new homes have risen for ten out of the past 11 months and are up almost 13 per cent on a year ago. An ongoing lift in construction finance would be beneficial for the broader economy given it is a key forward looking indicator. More homes being built over the medium term will provide additional support to the overall economic growth.

What do the figures show?

Housing Finance:
•    The number of new owner-occupier housing loans rose by 4.4 per cent in September, the eight increase in the past nine months. Housing finance commitments are up 12.6 per cent on a year ago.
•    Excluding the refinancing of dwellings, loans were up by 5.0 per cent in September.
•    The number of loans for the construction of homes rose by 1.8 per cent in September after rising by 2.1 per cent in August. The value of construction loans rose by 2.7 per cent in September.
•    But the number of loans to buy newly-erected dwellings fell by 2.1 per cent and the value of loans fell by 0.3 per cent.
•    The number of loans for the purchase of established dwellings excluding refinancing rose by 6.6 per cent and the value of loans rose by 6.9 per cent.
•    The number of refinancing transactions rose by 3.2 per cent from record highs while the value of transactions rose by 4.6 per cent.
•    The value of new housing commitments (owner occupier and investment) rose by 5.3 per cent in September after falling by 1.6 per cent in August. Owner-occupier loans rose by 5.3 per cent while investment loans rose by 5.2 per cent.
•    The proportion of first home buyers in the market fell from 13.7 per cent in August to a records low of 12.5 per cent in September (lowest since records began in 1991) and well below the long-term average of 20.0 per cent. Fixed rate loans eased from 16.4 per cent of all loans to 16.0 per cent in September. And the average home loan across Australia stood at $305,400 in July, up 1.8 per cent on a year ago.

What is the importance of the economic data?

Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.

What are the implications for interest rates and investors?

•    The housing market is in recovery mode. The good news is that more loans are being written to build homes and to buy newly-erected homes. But more may need to be done to entice first home buyers into the market.

•    From the Reserve Bank’s point of view, the lift in housing construction is a positive development. It leads to greater activity across depressed housing and retail sectors and increases housing supply in line with higher demand. CommSec expects the Reserve Bank to remain on the interest sidelines over the next couple of months.

Source - Savanth Sebastian, Economist, CommSec