FHB numbers decrease as lending to investors continues to accelerate
GUEST OBSERVER
Overall lending conditions in the housing market have firmed as a result of the RBA’s policy easing in 2016.
The strengthening in conditions, however, is primarily being driver by the investor segment. Lending to investors has accelerated over the past five months which coincides with the rate cuts of May and August.
On the other hand, lending to owner-occupiers (O-Os) has been trending down as declining affordability bites. This leads up to conclude that investors are behind the recent acceleration in property prices in Sydney and Melbourne.
O-Os: Lending growth to O-Os continues to ease. The 0.8 percent fall in the value of lending (excl refinancing) means that lending has fallen in two of the past three months. By number, there was a 1.6 percent increase in loans to O-Os over September. But the number of loans is 3.7 percent lower through the year.
The average new loan size for an O-O edged higher in September and has been trending upwards over the past five months – consistent with firmer dwelling prices.
Investors: Lending to investors has picked up since the RBA resumed cutting rates in May. Today’s ABS ‘flow’ data is consistent with the RBA’s ‘stock’ data which shows that the May and August rate cuts had a stimulatory impact on the housing market. As borrowing and deposit rates come down the rental yield on property becomes more attractive. As a result, lending to investors has lifted.
We have argued for a while now that the RBA is underestimating the impact that policy easing is having on the housing market. From our vantage point activity in the housing market remains firm, as evidenced by strong auction clearance rates, rising dwelling prices and firm credit growth. We acknowledge that the volume of transactions and number of listings is lower than a year ago.
But in our view that is not reflective of a lack of demand but rather less supply. It partly reflects high transaction cost in the property market which reduce liquidity. These transaction costs (largely stamp duty) rise when property prices increase.
Construction: Total lending for dwelling-related construction rose by 1.7 percent in September and is 6.1 percent higher through the year. This is consistent with the trend in residential building approvals. The approvals cycle looks to have peaked, however, and we expect lending for dwelling construction to ease in coming months. Lending for alterations and additions rose by 5.4 percent over the month and is up by 4.1 percent over the year. This is consistent with other indicators that show renovation activity is lifting.
States: The data on O-Os by State showed that annual growth in the number of loans was strongest in SA, Tas, and QLD. Loan growth lifted over the month in NSW and Vic but remains down in annual terms. An update on lending to investors by State will be in next Monday’s Lending Finance release.
First home buyers: The number of loans to first home buyers decreased by 7.5 percent over the year to September. First home buyer accounted for just 13.1 percent of all dwellings financed over the month.
Gareth Aird is economist at Commonwealth Bank and can be contacted here.