Investor loans shatter all-time record highs, RBA changes stance on first home buyers

There has been a lot of media chat about house prices "falling" in May, which is basically a result of the famed Daily House Price Index recording a decline in that month (as it has done every May, due to seasonality).

Meanwhile, back in the real world, the housing markets continue to look strong, with the ABS Housing Finance data recording further increases in April.

This comes as no surprise, because, as I posted here, other mortgage market data has suggested the same thing, with Australian Finance Group (AF) recording the its highest mortgage demand ever in May.

In particular, AFG's data suggested to me that the markets are being driven by property investors more than ever before, a direct effect of the lowest interest rates we have seen in a generation.

At long, long last it also seems that the penny is beginning to drop that first home buyers are not (and never were, in fact) "on strike" - they're still around but often in a different guise than in previous cycles.

Some are buying but a little later in life than before, others are buying yet aren't being recorded as first-timers, others still are buying as investors and as such slip through the net in that manner.

Shifting trends, yes... but not a "strike".

Construction?

Remember that through this property cycle in Australia what we really want to see is heavy investment in new dwellings in order to generate dwelling construction and economic activity to offset the coterminous decline in mining investment.

On the face of it, construction finance for owner occupiers still looks strong for owner-occupiers on a moving annual basis.

However, what this chart doesn't quite show so clearly is that the data for the last few months is beginning to look decidedly sketchy.

Hopefully I'm wrong, but the peak may soon be in for this segment of the market:

On the other hand construction finance for investors is very strong and looks to be heading for a record heights on a moving annual basis:

In aggregate, finance for new dwellings remains strong which bodes well for the construction index, particularly for apartments.

Investor loans shatter all-time records

As for total property investment loans in April, the monthly figure printed at an astonishing $10,978,872,000.

That is comfortably the highest aggregate of monthly property investment loans ever recorded in Australia, roundly plonking a very large question mark against the suggestion that property prices have been receding.

That's certainly the on the ground experience in Sydney: the idea that one might pick up under market value bargains based upon the supposedly falling prices is absurd. For decent properties, you'd be outbid very time.

The Lending Finance data for April to be released on Friday will provide more detail by state, and I have little doubt that rolling 12 monthly property investment loans in New South Wales will be at or close to record highs.

There are simply far too many investors in the market for it to be otherwise.

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Strike or shift?

There's been a long-running debate about the so-called "first home buyer strike" in Australia.

It never really made any sense, since first home buyer numbers have remained very solid in states which have grants for first-times such as Western Australia, where 20-25% of loans written continue to be for first-timers.

Yet mysteriously FHBs had apparently disappeared in states such as New South Wales, crowded out by greedy Baby Boomer investors.

I summed up the basic issue incomplete records issue at the beginning of the year here.

Further, as noted here as mortgage data broke new record heights, it's important to listen to what the data is actually telling you, which has not been commensurate with an entire sector of the market casually sitting on the sidelines.

There has been a shift, certainly.

First home buyers are getting older, often buying in couples rather than alone.

Many are choosing to buy an investment property as their first step, especially in Sydney.

But they are not "on strike", as has been claimed.

RBA reporting

The Reserve Bank released its chart pack to the end of May last week here, and it seems that the central bank has at long last reached the same conclusion, completely stripping the first home buyer data out of its chart pack.

Previously, the split had been shown between owner-occupiers, investors and first-timers, but since the FHB data was both incomplete and non-sensical, a decision has clearly finally been reached to have it pulled.

Other RBA charts show building approvals to be approaching something of a crossroads, although remaining close to record highs:

And dwelling prices remain in an uptrend.

The rest of the chart pack, which you can see here makes for interesting reading as always.

In particular, note the near-exponential rate of growth in bulk commodity export volumes which are now overwhelmingly driving Australia's economic growth.

With a third of Australia's annual exports by value destined for China, it's a highly leveraged play.

You can visit AllenWargent property buyers (London, Sydney) or Pete's blog.

His new book 'Four Green Houses and a Red Hotel' is out now.