First-home buyer activity at 6-year high: CommSec's Craig James

First-home buyer activity at 6-year high: CommSec's Craig James
First-home buyer activity at 6-year high: CommSec's Craig James

The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.3 per cent after rising by 2.6 per cent in the previous week (the biggest increase in 7½ months). 

Number of home loans: The value of lending to households rose by 2.6 per cent in February after falling 2.4 per cent in January. 

First-home buyers: In seasonally-adjusted terms, the share of first-home buyers in the home lending market hit 6-year highs of 27.1 per cent in February.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.

The lending figures have implications for builders, housing-reliant businesses, finance providers, retailers, and companies dependent on consumer and business spending.

What does it all mean?

Consumer confidence can be over-analysed. Sentiment apparently fell last week after rising in the previous week. Overall, however, confidence is above the lows recorded a month ago and still above longer-term averages. Interest rates remain stable as does the Aussie dollar, and while tax cuts lie ahead, home prices are still falling in Sydney and Melbourne. So consumers remain cautiously optimistic. Generally people feel good about the economy and the outlook for their finances but aren’t feeling especially rich at present and thus in no mood to spend up big. 

After falling almost 9 per cent in the prior three months, loans to households rose 2.6 per cent in February. Owner-occupier home loans, investment home loans, refinancing and personal loans all bounced in the month. And topping the good news is that the share of first-home buyers in the market is holding near 6-year highs. Lower home prices are certainly being embraced by one group of Aussies. What do the figures show? Consumer Sentiment

The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.3 per cent to 113.2 points after rising by 2.6 per cent in the previous week (the biggest increase in 7½ months). Consumer sentiment is above the longer term average of 113.1 points since 1990. 

Three out of the five major components of the index rose last week: 

The estimate of family finances compared with a year ago was down from +5.0 points to +3.2 points; 

The estimate of family finances over the next year was up from +20.7 points to +22.8 points;  Economic conditions over the next 12 months was up from +7.0 points to +7.7 points; 

Economic conditions over the next 5 years was up April 9 2019 2 Economic Insights: First-home buyer activity at 6-year high from +10.7 points to +11.6 points; 

The measure of whether it was a good time to buy a major household item was down from +30.2 points to +20.6 points. 

The measure of inflation expectations rose from a record low of 3.6 per cent to 4.3 per cent.

Lending 

The Australian Bureau of Statistics reported: “In seasonally adjusted terms, lending commitments to households rose 2.6 per cent in February 2019, driven by new lending for owner occupier dwellings (up 3.4 per cent). There were also rises for lending to households for refinancing (2.6 per cent), investment dwellings (0.9 per cent) and personal finance (0.4 per cent).The February rise in lending to households follows a 2.3 per cent fall in January 2019.

In seasonally adjusted terms, the value of new lending commitments for owner occupier dwellings is down 13.9 per cent from February 2018 and the value of new lending commitments for investment dwellings is down 29.1 per cent from February 2018. 

In trend terms, lending commitments for owner occupier dwellings fell 1.0 per cent and investment dwellings fell 2.2 per cent in February 2019. 

The number of lending commitments made to owner occupier first home buyers (seasonally adjusted) rose 1.8 per cent in February 2019. This outpaced the growth in the number of lending commitments made to non-first home buyers (up 1.6 per cent).

In trend terms, lending to businesses fell 2.4 per cent in February and is down 3.3 per cent from February 2018.” 

The share of first home buyers (excluding refinancing) rose from 26.8 per cent to 27.1 per cent in seasonally adjusted terms in February, a 6-year high.

Excluding refinancing, the number of owner-occupier home loans across States & territories were: NSW (-8.2 per cent); Victoria (+1.5 per cent); Queensland (+4.1 per cent); South Australia -1.2 per cent); Western Australia (- 1.2 per cent); Tasmania (+6.2 per cent); NT (+14.2 per cent); ACT (+7.4 per cent). 

Fixed-rate home loans accounted for 16.2 per cent of all owner-occupier loans in February (5-month low), down from 16.6 per cent in December. 

What are the implications for interest rates and investors?

 Retailers must provide a unique proposition in the current environment in order to get cautious consumers to part April 9 2019 3 Economic Insights: First-home buyer activity at 6-year high with cash. 

Is home lending starting to stabilise after recent weakness? It is early days, but the lift in lending in February is encouraging. The softer home prices are certainly bring more first home buyers into the market. Rising home prices aren’t unambiguously positive. Neither are falling prices unambiguously negative. Rather price changes reflect a rebalancing of supply and demand. And that rebalancing continues, especially in Sydney and Melbourne. The falling home prices certainly are being embraced by first home buyers. And lower home prices, give cashedup buyers more choice if loan size doesn’t change. 

Interestingly, while NSW home prices have retreated 9.5 per cent on a year ago, the average home loan is down only 1.6 per cent. Home buyers haven’t cut back on loan size, rather they have arguably access to a greater range of properties. 

CommSec expects interest rates to be unchanged for the foreseeable future. But the loss of momentum across global economies means central banks are skewed to more accommodative monetary policies.

CRAIG JAMES is the Chief Economist at CommSec

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