Mortgage market rally continues with 2.7% rise in home loan commitments in June, but still scope for further rate cuts

The June ABS housing finance data indicates that the mortgage market has enjoyed its strongest start to a calendar year in four years.

The number of home loans to owner occupiers rose 2.7% over June to 51,001 mortgage commitments, well above economists’ expectations of a 2% rise and the sixth successive month that this key housing market metric has increased.

CommSec chief economist Craig James says that over the first six months of 2013, housing finance has lifted by 13.8%, with loans to build new homes having risen for seven consecutive months and above both five-year and 10-year averages.

The number of home loan commitments trended up in all states, led by the resource states of WA and Queensland, which have gained 18.5% and 19.9% respectively over the past 12 months, but with strong growth also recorded for the ACT (14.3%), SA (13.9%), NSW (10.5%) and Victoria (7.7%).

Loans are up by 5.3% annually in Darwin, with Tasmania the weakest state with just 2.1% annual growth.

Indicating the impact of lower home loan rates, the value of loans that were refinanced in June was a record $4.43 billion, up 13.4% over the year - though appetite for fixed-rate home loans eased from 19.1% of all loans to 17.8% in June

There was also a small improvement in the size of the first-home buyers’ market, whose share of total loans taken up edged up from 14.6% to 15.1%, though still below the long-term average of 20%.

Loans to investors fell slightly in June but are a reasonably strong 18.3% higher over the past year, notes Michael Workman from the Commonwealth Bank.

Craig James found both positive and negative trends in the June data noting that despite mortgage rates at their lowest in over 50 years the value of all new loans (excluding refinancing) is still is over 4% below the highs set five years ago.

“In short, borrowers remain cautious – especially first-home buyers.

“Despite some of the most attractive buying conditions in years, the proportion of first home buyers in the market is still well down on the average levels recorded over the past 22 years.

“The good news is that more people are taking out loans to build new homes rather than buying established properties. The revised grants from state governments are helping to lift construction, as is the low level of interest rates,” he says.

James says the rise in mortgage lending equates to “more homes being bought and more homes being built.

“So housing is well placed to provide a boost to the economy and take over growth leadership from mining,” he says.

Macquarie Research senior economist Brian Redican described the better than expected June housing finance figures as a sign that this is “one [non-mining] sector that is moving forward” that hopefully has a bit of momentum behind, but said the rise would not be  reason to stop cutting rates with the RBA looking to encourage more first-home buyers and investors into the market.

However only a 0.2% rise in loans for the purchase of new dwellings remains a “minor concern” said Redican as part of comments reported by Fairfax.