Housing Investment

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<p><span>As a result of new lending criteria delivered to deposit-taking institutions by Australian Prudential Regulation Authority (APRA) a lot of attention has been placed on the pace of lending for residential housing investment. </span></p>
<p><span>The APRA guidelines highlighted a limit on annual investment </span><span>credit growth for ADIs of 10% however, from that point until June 2015 the annual rate of investment credit growth continued to increase.</span></p>
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<p><span>Although it’s only one month of data, the latest housing credit </span><span>data to July 2015 suggests that we may be finally set to see a </span><span>slowing of investment credit growth. </span></p>
<p><span>Over the 12 months to July 2015, the Reserve Bank (RBA) reports that total housing credit rose by 7.4%; its fastest annual rate of growth since October 2010, and consisted of a 5.3% annual increase in owner occupier credit (fastest growth since March 2012) and a 10.8% annual rise in investor credit.</span></p>
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<p><span>Investor housing credit is still growing at a robust pace however, at 10.8% over the year it is down from </span><span>11.1% in June and at its lowest level since March 2015. “In fact, </span><span>the monthly investor housing credit data shows credit advanced by just 0.6% in July which was its lowest monthly increase since </span><span>October 2013. </span></p>
<p><span>Investment segment lending data on the investment segment </span><span>suggests that following recent changes to lending policies by Australian ADIs, lending to the investment segment of the market is set to slow further over the coming months. </span></p>
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<p><span>With mortgage rates remaining low we would anticipate the rate of </span><span>growth will slow to around the 10% per annum benchmark, </span><span>however this is unlikely to drop much further than that.</span></p>
<p><span>While any slowdown in investment growth may have an impact on </span><span>overall housing credit figures, Mr Kusher noted that it’s important </span><span>to recall that a much greater proportion of overall lending goes to owner occupiers. </span></p>
<p><span>In July 2015, the total value of outstanding housing credit was $1.476 trillion. This figure was comprised of $906.4 billion in lending to owner occupiers and $569.8 billion to investors. </span></p>
<p><span>I</span><span>t’s important to remember that the rate of </span><span>growth in owner occupier lending has also been rising although over the past year there was a $45.2 billion expansion in credit to owner occupiers compared to $56.1 billion to investors. Furthermore, the proportion of total mortgage credit to investors is at a record high 38.6%. </span></p>
<p><span>ADIs of course don’t lend exclusively for mortgages and the latest </span><span>data shows an encouraging lift in credit to businesses. In July 2015 business credit rose by 0.7% to be 4.8% higher over the year. Total business credit is currently recorded at $799.7 billion, which is significantly larger than investment housing credit.</span></p>
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<p><span>The RBA and APRA are likely to be very encouraged to see the </span><span>first signs of a slowing of lending to the investment housing segment and would hope that it continues over the coming months. </span></p>
<p><span>While this may result in a slight slowing in overall housing credit growth increases, this shouldn’t be viewed as a negative outcome. </span><span>If the recent increase in business credit can continue it would </span><span>arguably provide greater economic benefit. </span></p>
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<p><span><em>Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/author/cameron-kusher/" target="_blank">here</a>.</em></span></p>
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Has growth in investor housing credit reached its apex? Cameron Kusher

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<p><span>The Australian Bureau of Statistics (ABS) released housing finance data for August 2015 earlier this week.  </span></p>
<p><span>The data broadly showed a further pick-up in owner occupier lending and a slowing in investor lending. It is important to reconcile this against numerous reports that many mortgagees have been quick to advise their lenders that their properties which were formerly investment properties are now in fact owner occupied. </span></p>
<p><span>This is due to the fact that most lenders are now charging a premium for investment mortgages.</span></p>
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<p><span>The above chart details the components of those borrowing over time. What’s immediately noticeable is that while there has been a recent surge in lending to investors, over recent months there has been a clear fall in lending to this cohort. </span></p>
<p><span>While investment lending is slowing, owner occupier lending is rising however, there has been very little bounce in lending to first home buyers. For the most part the rise in owner occupier lending is being fuelled by an escalation in both refinances and borrowing for new loans to non-first home buyers. Again, it is important to note some of these figure may be being affected by re-classifications of mortgages.</span></p>
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<p><span><span>In August 2015, owner occupiers committed to $20.8 billion worth of housing finance, a 6.1% rise over the month and a 26.5% year-on-year rise.  Looking at the components of owner occupier lending there was $1.7 billion in lending for construction of dwellings, $1.2 billion in lending for purchase of new dwellings, $6.4 billion in refinances of established dwellings and $11.5 billion for purchase of other established dwellings. </span></span></p>
<p><span><span>The 6.1% monthly rise in owner occupier lending was largely fuelled by a 10.4% rise in lending for purchase of established dwellings however, each component rose.  Refinances have typically been the greatest source of growth in owner occupier lending however, they recorded the slowest growth of any segment over the month.  Looking at year-on-year changes, lending for construction of dwellings rose 0.5%, lending for purchase of new dwellings rose 17.6%, refinances of established dwellings rose 26.7% and purchase of established dwellings increased by 32.6%.  </span></span></p>
<p><span><span>Over the coming months we will be watching closely to see whether the growth in owner occupier lending can be maintained, particularly in the face of falling population growth and no real increase in activity from first home buyers.</span></span></p>
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<p>Switching the focus to the investor segment, there was $13.6 billion worth of commitments to investors in August 2015. The value of lending to investors was -0.4% lower over the month but 12.0% higher year-on-year. It was also the first time in 13 months that the value of new lending (excluding refinances) was greater to owner occupiers than it was to investors.</p>
<p>Over the month there was $0.8 billion in lending for construction of dwellings and $12.7 billion in lending for established housing. Over the month, lending for construction of dwellings fell -22.0% while commitments for established housing rose 1.4%. Year-on-year lending for construction of new homes is -2.5% lower and lending for established homes is 13.1% higher.</p>
<p>The data appears to indicate that there is a change occurring in the mortgage lending market. Whereas investors and owner occupier refinances have been the primary drivers of growth lately, it seems as if this is now tilting to owner occupier new loans starting to dominate. Given that investment mortgages generally now have a higher interest rate than owner occupier mortgages, it may be playing a role in the tilt towards owner occupier lending. </p>
<p>Furthermore, value growth has been strong for more than three years in Sydney and Melbourne and investors may be becoming concerned about the longevity of the boom while growth outside of these cities has been sedate. </p>
<p>Once you also consider a record high pipeline of residential construction accompanied by a record low rate of rental growth and historical low yields perhaps a growing number of investors are looking towards other forms of investment they perceive as less risky at this stage in cycle. It’s still early days for the slowdown in investment lending but we, along with the RBA and APRA, will be watching closely to see whether the slowing in investment lending and the rise in owner occupier lending persists over the coming months. </p>
<p>It is also going to be interesting to see what impact this has on overall demand for housing over the coming months in lights of evidence of a bit of a softening in the Sydney housing market.</p>
<p><em>Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/author/cameron-kusher/" target="_blank">here</a>.</em></p>
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Owner occupier housing finance commitments take a step up: Cameron Kusher

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<p>Despite the recent slowdown, housing finance data highlights that investor activity in the housing market is starting to rise again and when you look at total returns from housing it’s no surprise.</p>
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<p>The CoreLogic RP Data Accumulation Index which has been published since June 2009 highlights the total returns from residential property.  The total returns include both the increase in values as well as gross rental returns.  </p>
<p>The first chart shows the annual change in the total returns (accumulation) index over time. While combined capital city home values recorded longer and deeper falls during 2011-12, total returns were negative for only a short period of time thanks to the uplift from rental yields. More recently you can see that the annual change in total returns across the combined capital cities has remained quite strong.</p>
<h3>Combined capital city annual changes in total returns for houses and units</h3>
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<p><br><br>Over the 12 months to May 2016, combined capital city home values have increased by 10.0 percent while total returns have been recorded at a higher 13.9 percent. Looking at the individual capital cities, all cities except for Perth have recorded positive total returns over the past year. Sydney and Melbourne which have been the most active investment markets have seen the highest total returns at 16.9 percent and 17.5 percent respectively over the past twelve months. It should be noted that gross rental returns in both of these cities are now at record lows highlighting that the majority of these returns have come via an increase in home values.</p>
<h3>Annual change in capital city total returns, 12 months to May 2016</h3>
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<p><img src="/images/2016/06/09/2016-06-06--img2.jpg" alt=""></p>
<p>The third chart highlights the total returns over the past five years across all capital cities. Again, Sydney in particular, has seen far superior total returns compared to all other capital cities. </p>
<p>Melbourne has also experienced relatively strong total returns over the past five years. </p>
<p>Again this highlights why these two cities in particular have remained so popular with investors. In all other capital cities returns from residential property have been positive.  In many of these cities the total returns have been driven more so by the rental returns rather than the capital growth which has been the key driver in Sydney and Melbourne.</p>
<h3>5 year total change in total returns, to May 2016</h3>
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<p><img src="/images/2016/06/09/2016-06-06--img3.jpg" alt=""></p>
<p>Despite the recent rebound in value growth, the mature capital growth cycle and record low rental returns in Sydney and Melbourne, total returns are unlikely to be as strong in these cities over the coming years. A more balanced investment approach which focusses on moderate capital growth and relatively strong rental returns is likely to be a superior housing investment profile over the coming years. </p>
<p>This data also highlights why housing investment has been so popular. In a low interest rate and subsequently low return environment housing has, over recent years, offered attractive returns. Whether this continues to be the case remains to be seen.</p>
<p><em>Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.</em></p>
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Total property returns show why housing investment remains so popular: CoreLogic

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<div>I took a look at the Housing Finance figures for December previously. In this post, I'll just add a few sundry thoughts.<br><br>There are always plenty of angles put forward for why the housing market must be struggling, or will be set to struggle in due course, true enough.<br><br>And indeed, some locations are struggling, no question about that - mainly comprising mining towns, or regions being heavily impacted by the ongoing collapse in mining investment.<br><br>Anecodotally, mortgage lending has also perhaps been a little bit slower in January. </div>
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<div>It was interesting to note, however, that the raw original data (without seasonal adjustments applied) recorded $35,961,746,000 of dwelling finance commitments in the month of December, an increase of $2.3 billion or +6.7 per cent from one year ago.</div>
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<div>I'm no incurable optimist, but there's not too much wrong with the health of the lending market on that evidence. In fact it was the highest figure ever recorded for a single month.</div>
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<p><span><span>Refinancing is evidently a complicating factor, as you can see in the chart above, but the value of loans actually advanced in December was up by +24.6 percent to its highest ever level at $23.8 billion.</span></span><br><br><span>I noted on </span>Twitter<span> last week that the average loan size figures seemed to have gotten a little ahead of themselves, and sure enough there was a pullback in December to a somewhat more believable $377,600, althought this is still +11.2 per cent higher than one year ago, and the figure still looks rather overstated. </span></p>
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<p><strong><span style="text-decoration: underline;">Construction continues</span></strong><br><br></p>
<div>Much has also been written about the imminent downturn in residential construction sector. </div>
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<div>In one sense this is a truism since construction activity is also now tracking at its highest every level, and clearly this dynamic cannot continue in perpetuity. </div>
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<div>However, the most recent housing finance figures suggested that there is still a fair amount of juice in the tank. </div>
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<div>The rolling annual value of commitments for investor construction, which is a handy indicator if not anything more concrete than that, is up by +27.6 percent from one year ago. The equivalent figure for owner-occupier purchase of new dwellings is up by +15.7 percent.</div>
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<div><span>The number of commitments for new dwelling purchase also jumped in December to 3,579 in original terms, and you would have to go back a long, long way to find a stronger monthly result than that. </span></div>
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<div><span>Major renovation activity has been marginally improved in recent months from 2014 levels, but in reality this has been almost exclusively a Sydney trend through this cycle to date. </span></div>
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<strong><span style="text-decoration: underline;">First time buyers are active</span></strong><br><br><div>The latest figures showed an increase in first homebuyer owner-occupier activity of +4.6 percent to 15.1 percent of all loans written. </div>
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<div><span><span>If you include first time buyer investors from industry surveys, the total figure for first time buyers is tracking around 50 per cent higher than this.</span><br><br><strong><span style="text-decoration: underline;">The wrap</span></strong><br><br><span>Overall, it is clear that there has been a behavioural shift between lenders and borrowers towards favouring owner-occupier mortgages over investment loans, the lines between which have become hopelessly blurred.</span><br><br><span>The headline figures show that in aggregate housing finance remained relentlessly strong through 2015, even if some mining regions are feeling the burn.</span><br><br><span>According to CoreLogic-RP Data Sydney posted Very solid preliminary auction clearance rate of 78.6 per cent from 469 auctions, well ahead of the preliminary clearance rate for Melbourne at 72.6 per cent.</span><br><br><span>Vendors seem a bit more realistic, and these are still relatively low volumes. Most signs point to a steady Sydney market in 2016.</span><br><br><span>Westpac's forecasts for economic growth from 2015 to 2017:</span></span></div>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Housing market in good health: Pete Wargent

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<p class="post-title entry-title">EXPERT OBSERVER</p>
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<div><span style="text-decoration: underline;">Investors squashed</span></div>
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<div>APRA's latest monthly banking statistics reported negative growth in investment loan exposures in July.</div>
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<div>Commonwealth Bank, ANZ Bank, Westpac Banking Corp, and Suncorp all recorded an outright decline in outstanding housing investment loans, while NAB's investment loan book was broadly flat. </div>
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<div>Year-on-year growth is either negative or slowing for each of the major banks. </div>
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<br><div>The Reserve Bank of Australia (RBA) also reported that year-on-year investor credit growth hit its lowest level on record in July 2018.</div>
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<div>With annual personal credit growth contracting even further to -1.4 per cent and business credit growth slower than a year earlier at just 3.4 per cent, the growth in total credit is now at the lowest level since the first quarter of 2014.</div>
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<div>Lending to homebuyers remains solid, but broad money growth is tracking at quarter-century lows. </div>
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<br><div>The housing investor market share fell further to 33.2 per cent, now having fallen back in line with the average level for this millennium to date (there have evidently been a few misclassifications along the way). </div>
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<br><div><span style="text-decoration: underline;">Equal &amp; opposite reaction</span></div>
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<div>Housing markets can be a finely balanced affair, with the strong level of rental supply of recent years now set to reverse.</div>
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<div>Given that we've been through a period of strong immigration/population growth alongside falling home ownership rates, from a macro perspective presumably this must be leading to rental shortages in some parts of the country (not so much in the big capital cities yet, due to the high level of off the plan apartment purchases through this cycle and the related lag effect). </div>
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<div>I don't have much time to look at it today, but a quick glance at the stats shows rental vacancy rates plunging towards zero in Orange, from certain parts of Adelaide to Ballarat and Canberra, and from Geelong West to Hobart and Moranbah.<br><br>If the investor squeeze persists Melbourne may be next of the largest metropolises. </div>
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<div>Still plenty of apartment supply to be absorbed in the big cities, but this will be one trend to watch with interest.</div>
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<br><em>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em>
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Investors squashed further: Pete Wargent

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<p>Australian private sector credit recorded a solid increase in June, led by a rebound in the business sector after several months of weakness.</p>
<p>The divergence between investor and owner-occupier housing credit continued, with the former still slowing in response to APRA’s macroprudential regulation.</p>
<p>This trend is likely to still have further to run.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/07/31/Screen%20Shot%202017-07-31%20at%201.51.10%20pm.jpg" target="_blank">Click to enlarge</a></p>
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<p>Housing credit posted another 0.5% m/m rise in June, although at the margin (2 decimal places) this was the slowest monthly increase in a year.</p>
<p>The slowdown in investor borrowing continued, and quarterly annualised growth now sits at 6.0%.</p>
<p>This reflects a significant cooling from the recent peak of 9% growth reached in December 2016, suggesting that APRA’s macroprudential regulation continues to bite housing investors.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/07/31/Screen%20Shot%202017-07-31%20at%201.50.41%20pm.jpg" target="_blank">Click to enlarge</a></p>
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<p>On the other hand, credit to owner-occupiers again posted faster monthly growth than the investor segment.</p>
<p>The divergence between the segments kept total annual housing credit growth at 6.6% y/y, reflecting a stabilisation at a marginally higher rate than at the start of the year.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/07/31/Screen%20Shot%202017-07-31%20at%201.50.50%20pm.jpg" target="_blank">Click to enlarge</a></p>
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<p>Business credit recorded the strongest monthly rise since December 2016, up 0.9% m/m.</p>
<p>This is a welcome result after a period of weakness, but we do not expect it to be sustained indefinitely.</p>
<p>Business finance approvals have remained weak in recent months, and suggest that growth in the stock of business credit is likely to ease from here.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/07/31/Screen%20Shot%202017-07-31%20at%201.51.00%20pm.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/07/31/Screen%20Shot%202017-07-31%20at%201.51.00%20pm.jpg" alt=""></p>
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j.ballantyne1990-6AQqhLzZaK

Housing investor credit continues to ease: ANZ Research

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<p><span style="line-height: 1.3em;">Property investors have been urged to conduct an annual property portfolio review to make sure they are getting the most from their property investment.</span></p>
<p>The financial services company Direct Property Network has posted a four stage procedure to ensure all portfolios are kept running like a "well-oiled machine".</p>
<p><strong>Access further equity</strong></p>
<p>One of the most advantageous features of investing in property is the fact that it's a direct route into further real estate investment. The equity you hold in your portfolio can be leveraged to borrow for another property, further growing this equity and continuing the cycle. By conducting an annual portfolio review, you'll know if you've built up sufficient equity in one or more of your assets in order to purchase another property, and can start putting your plans into motion.</p>
<p><strong>Restructure your portfolio</strong></p>
<p>Even if your portfolio as a whole is doing well, that doesn't mean every single property is performing to your preferred standard. One or more properties could be seeing stalled or even stagnating value growth, while others might not be delivering the same kind of rental revenue as they were before. Through an annual review, you'll be able to identify any potential issues before they become bigger problems, and gain insight into which properties you need to sell. </p>
<p><strong>Revise your finance</strong></p>
<p>Any mortgage expert will tell you about the usefulness of re-examining your financial structuring. Refinancing a home loan to take advantage of recent interest rate cuts, for instance, can save you thousands of dollars. You can also restructure a mortgage to insulate yourself from changes in your financial circumstances, such as by splitting your home loan between a fixed and variable rate. The ultimate goal is to make sure your rental income continues to offset the expense of your own home mortgage, so incorporate this into your annual portfolio review.</p>
<p><strong>Ensure you're on track</strong></p>
<p>No one should start building a portfolio without a cohesive property investment plan in place. This plan should be based on a concrete goal or aim that you want to achieve through investing - saving for retirement, for instance, or making enough to open and run a particular business. Your annual review will let you see if you're still on track for meeting this goal and if not, why and how you can change course. If your goal was more tentative when you began, then this could be an opportunity to clarify it. </p>
<p>No matter the reason you decide to start reviewing your portfolio on an annual basis, be sure to work with experienced professionals. Not only can they help you determine the next course of action to take, but they can also use their industry knowledge to measure and identify the true performance of your portfolio - often easier said than done.</p>
<p>For more information, <a href="https://www.directpropertynetwork.com.au" target="_blank">click here</a>.</p>
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