Investor Loans

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<div class="column"><span style="line-height: 1.3em;">GUEST OBSERVER</span></div>
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<div class="column"><span style="line-height: 1.3em;">The latest lending statistics show a mild consolidation in July, although the result is not a cause for concern – especially given that lending is holding just 4% shy of the seven-year highs reached in April. </span></div>
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<div class="column"><span style="line-height: 1.3em;">The real driver of lending over the past year has been the housing sector and in that context it is investor housing that has driven the strength. However the tighter bank lending standards are starting to have an impact in terms of the housing finance data - loans for construction of new dwellings has now fallen for three consecutive months.</span></div>
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<br><span style="line-height: 1.3em;">It is important to realise while housing activity will continue to be the backbone of the economy over the coming year, it is starting to show signs of starting to cool – especially when it comes to irrational exuberance. If there is an anticipated pullback in home lending policymakers would be hoping that activity amongst the business sector lifts from here.</span>
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<br><span style="line-height: 1.3em;">There would be mild disappointment in the fall in business loans in July. Commercial loans are now down 5% on a year ago. Business conditions are healthy, however businesses are still rather tentative about borrowing. The key driver of future lending will be an ongoing improvement in labour market conditions, rise in </span><span style="line-height: 1.3em;">business hiring intentions and lift in consumer confidence. </span>
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<div class="column"><span style="line-height: 1.3em;">The Reserve Bank will dominate headlines next week with a number of releases and speeches. However the focus will be squarely on the Reserve Bank Governor, when he testifies in front of the House of Representatives Economics Committee on Friday. It will be interesting to see the Governors views when it comes to the non- mining business investment and how the housing sector is likely to evolve with the tighter lending standards. CommSec expects no change in interest rates over the next year.</span></div>
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<p><span>What do the figures show? </span></p>
<p><span>Lending finance </span></p>
<p><span>Total new lending commitments (housing, personal, commercial and lease finance) fell by 0.1% in August to $74.1 billion after a 1.3% rise in June. New loans are down 1.1% over the year.</span></p>
<p><span>Housing finance: The seasonally adjusted measure of construction and new purchases rose by 2.2% in July while alterations &amp; additions rose by 0.9%. Home loans are up 13.4% on a year.</span></p>
<p><span>Commercial finance: The seasonally adjusted series for the value of total commercial finance commitments fell by 2.7% in July. Revolving credit commitments fell by 13% while fixed lending commitments fell by 0.9%. Business loans are down 5% over the year.</span></p>
<p><span>Personal finance: The seasonally adjusted series for the value of total personal finance commitments fell by 2.6% in July after rising by 0.9% in June. Revolving credit commitments rose by 2.6% and fixed lending commitments fell by 5.8%. Personal loans are down 12.7% over the year. Within personal fixed finance commitments, finance for used cars was down 2.3% on a year earlier while loans for new cars were up by 8.8%.</span></p>
<p><span>Lease finance: Lending rose by 60.2% in July. Lease finance rose by 68.9% over the year. What is the importance of the economic data?</span></p>
<p><span>Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.</span></p>
<p><span>What are the implications for interest rates and investors?</span></p>
<p><span>The Reserve Bank would be comfortable about the mix of borrowings: Aussie businesses are tentatively borrowing - in a measured way. Still, the Reserve Bank would be watching the recent drop in consumer confidence a lot more closely.</span></p>
<p><span>The weaker Aussie dollar is providing solid stimulus to the economy at present and the Reserve Bank will continue to assess the impact on the economy over the next few months. CommSec expects no change to interest rates over the coming year. </span></p>
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<p><em><span>Savanth Sebastian is an economist for CommSec. You can follow him on Twitter <a href="https://twitter.com/commsec" target="_blank">here</a>.</span></em></p>
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Tighter bank lending standards showing impact: Savanth Sebastian

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<p class="p1"><span class="s1">GUEST OBSERVER</span></p>
<p class="p1"><span class="s1">In late 2015, the major banks began to feel the heat from APRA regarding their exposure to residential investor loans and how their appetite for this type of funding was driving new development product and impacting the market. </span></p>
<p class="p1"><span class="s1">Prior to this inevitable crack down by ASIC and APRA in their respective spheres of responsibility, the major banks enjoyed a long and prosperous period where they were largely unchallenged in the construction finance sector. </span></p>
<p class="p1"><span class="s1">However, now we are seeing changes as the capital requirements imposed on the banks start to take effect. Importantly, all political parties support the continued application of pressure via the regulatory levers to ensure that their contingent exposure to underwriting the banks deposit funds is appropriately controlled and “well managed”. This is because Australians have an expectation that their savings accounts will always be there when things get tough and they expect their politicians to ensure this is so. No political leader wants to be explaining why they allowed unscrupulous bankers to lose the hard earned savings of their Mum and Dad constituents. </span></p>
<p class="p1"><span class="s1">These overriding regulatory requirements are not temporary responses to a specific event; they represent an ongoing constraint that will impact the pricing and structure of all future construction loans, resulting in permanent changes to bank lending policies which will now fluctuate within certain lower risk parameters. </span></p>
<p class="p1"><span class="s1">This represents a new world order in construction finance and has been clearly demonstrated with all four banks being either closed for “new to bank” business; or, operating with significantly reduced appetite and lending parameters over the past 10 months. </span></p>
<p class="p1"><span class="s1">These loans are assessed individually via a complex risk model that requires all the relevant factors to be input to ensure the banks satisfy and maintain the accepted risk levels required of them by APRA. As a consequence, there are far fewer “discretionary” decisions available to your bank manager when he deals with an application. </span></p>
<p class="p1"><span class="s1">Developers can no longer expect their house bank to provide the necessary funding because “they have always done it in the past”. As many are learning, the fact that they may have had a long-term relationship with their bank is of no consequence and doesn’t guarantee an ability to borrow funds on the same terms that they have become accustomed to. </span></p>
<p class="p1"><span class="s1">With the banks now limiting their exposure to the sector and pricing risk far more keenly than in the past, a wide range of alternative debt providers and equity players are entering the market or broadening their existing reach. The challenge for today’s developer is identifying which ones best fit both their business and specific project needs. This in turn requires a readjustment of expectations as to what constitutes an appropriate finance cost when assessing project viability as the cost of these funds is generally between 2-3% higher. </span></p>
<p class="p1"><span class="s1">While all this sounds like the industry has become a lot more complicated, and in some ways it has, it also means there are far more options available to developers, enabling them to fulfil their project ambitions and maximise their available capital. Just as the housing mortgage market was completely restructured with the coming of the wholesale funds and brokerage structures, we expect to see the construction finance industry undergo a similar metamorphosis, ultimately with similar positive results for developers. </span></p>
<p class="p1"><span class="s1">With the re-emergence of various second tier lenders, investment funds, managed trusts and private lenders all vying for a share of what will continue to be a growingly sophisticated market, the challenge for the governments and the regulators will be ensuring that Mum and Dad investors in search of better returns get the appropriate levels of protection that their bank funds do. </span></p>
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<p><em>This article appeared in Holden CAPITAL's Special Edition Market Update - Winter 2016 Insights from the Front Line of Construction Finance .</em></p>
<p><em><em>This article was written by Dan Holden of HoldenCAPITAL, who are a bespoke construction finance firm, they arranged over $300 million of construction finance in 2015 across 52 projects. To discuss your project finance requirement please call (07) 3171 4200 or visit <a href="https://www.holdencapital.com.au/" target="_blank">www.holdencapital.com.au</a></em></em></p>
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Construction finance industry likely to undergo metamorphosis: Holden Capital

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<div class="column">GUEST OBSERVER</div>
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<div class="column">The number of loans (commitments) for budding home owners (owner-occupiers) rose by 0.9 percent in November after falling by 0.6 percent in October. It was only the second rise in lending in five months. </div>
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<div class="column">The value of loans rose by 2.2 percent in November with owner loans up 0.4 percent and investor loans up 4.9 percent.</div>
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<br>The ANZ/Roy Morgan consumer confidence rating eased from four-month highs, falling by 0.7 per cent to 119.3 in the week to January 15. Confidence is up 4.6 per cent over the year and well above the average of 113.1 since 2014.</div>
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<br>The inflation expectation 2 years ahead was at 4.6 per cent, a 13-month high. Inflation expectations has now held above 4 per cent for the past 5 months.</div>
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<br>The Bureau of Statistics (ABS) reported that new vehicle sales rose by 0.3 per cent in December. The CommSec Luxury Vehicle index hit record highs in 2016 with sales of 17 luxury marques up 12.1 percent on a year ago. </div>
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<p>On its own, the lift in home loans doesn’t look overly concerning – especially given it was only the second rise in the past five months. But couple it with the lift in home prices in the latter part of last year and it suggests that the housing landscape may continue to cause policymakers a little bit of angst over 2017. Even more so when you delve a bit deeper into the data and realise that the lift in the value of loans was largely driven by investors.</p>
<p>The value of loans by investors surged by 4.9 per cent in November to be up 21.4 over the year – the strongest annual growth in 19 months.</p>
<p>If home prices continue to lift, with growth largely driven by investor loans, regulators may look at further restrictions to curb lending.</p>
<p>Household confidence remains just shy of recent four month highs. And more importantly confidence is holding well above longer-term averages. In particular, the measure of whether it was a good time to buy a major household item lifted to the highest levels in five months. No doubt the discounts offered by retailers post-Christmas are enticing households to spend a little bit more freely. </p>
<p>Interestingly the inflation expectation 2 years ahead was at 4.6 per cent in the past week - a 13-month high. Inflation expectations have now held above 4 per cent for the past 5 months. There is no doubt that inflationary pressures have bottomed out and are likely to start lifting.</p>
<p>Annual new vehicle sales are just shy of recent record highs, suggestive of underlying strength in business and consumer sentiment and finances. But the trends aren’t uniform with sales of sports utility vehicles consistently setting new highs while passenger car sales have now fallen to 20- year lows in rolling annual terms. </p>
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<div class="column">What do the figures show?</div>
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<div class="column">Housing finance - number</div>
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<div class="column">The number of loans (commitments) for budding home owners (owner-occupiers) rose by 0.9 per cent in November after falling by 0.6 per cent in October. It was only the second rise in lending in five months. Excluding the refinancing of dwellings, the number of loans was up by 2.1 per cent.<br><ul>
<li>  The number of new home loans was down by 2.6 per cent on a year ago.</li>
<li>  Loans by owner-occupiers for the construction of homes rose by 2.3 per cent in November.</li>
<li>  Loans to buy newly-erected dwellings rose by 3.3 per cent.</li>
<li>  Loans for the purchase of established dwellings (excluding refinancing) rose by 2.0 per cent.</li>
<li>  The number of refinancing transactions fell by 1.2 per cent.</li>
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<p>Lending across states/territories in November: NSW (+1.5 per cent); Victoria (+0.8 per cent); Queensland (+2.4 per cent); South Australia (-1.3 per cent), Western Australia (-0.7 per cent); Tasmania (-1.0 per cent); Northern Territory (+2.7 per cent); ACT (+0.2 per cent).</p>
<p>Housing finance - value</p>
The value of new housing commitments (owner occupier and investment) rose by 2.2 per cent in November after rising by 0.5 per cent in October. Owner-occupier loans rose by 0.4 per cent but investment loans rose by 4.9 per cent.<br><p>The value of loans by owner-occupiers and investors to build new homes rose by 14.2 per cent in November after falling by 1.7 per cent in October. The value of loans to build new homes rose to an 8-month high of $3.07 billion in November.</p>
<p>Housing finance – other statistics</p>
<p>The proportion of first-time buyers in the home loan market rose from 13.7 per cent to 13.8 per cent in November (long-term average 19.4 per cent).</p>
The proportion of fixed rate loans eased from 12.8 per cent to 12.5 per cent in November. And the average home loan across Australia stood at $376,600 in November, up 3.6 per cent in the month but down 1.6 per cent on a year ago.</div>
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<p><span>Consumer confidence </span></p>
<p>The ANZ/Roy Morgan consumer confidence rating eased from four-month highs, falling by 0.7 per cent to 119.3 in the week to January 15. Confidence is up 4.6 per cent over the year and well above the average of 113.1 since 2014. Two of the five components of the index rose in the latest week:</p>
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<li>  The estimate of family finances compared with a year ago was down from +13 to +8;</li>
<li>  The estimate of family finances over the next year was down from +33 to +32;</li>
<li>  Economic conditions over the next 12 months was unchanged at +2;</li>
<li>  Economic conditions over the next 5 years was up from +11 to +12;</li>
<li>  The measure of whether it was a good time to buy a major household item was up from +41 to +43 – the strongest reading in 5 months.</li>
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<p>In addition the inflation expectation 2 years ahead was at 4.6 per cent, a 13-month high. Inflation expectations has now held above 4 per cent for the past 5 months.</p>
<p>New car sales:</p>
According to the Australian Bureau of Statistics (ABS) new vehicle sales rose by 0.3 per cent in December after falling by 0.7 per cent in November. Passenger car sales rose by 3.6 per cent, while sales of sports utility vehicles fell by 3.3 per cent and sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) rose by 0.7 per cent.</div>
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<br>New vehicles sales were up by 0.2 per cent over the year. Passenger car sales in December were down by 4.2 per cent over the year, while SUVs sales were unchanged and “other vehicles” were up by 10 per cent.<br><p>In rolling annual terms, 1,178,133 new vehicles were sold over the 2016 calendar year. Sales of SUVs (441,023) eased from record highs in annual terms, while annual sales of “other” vehicles stood at a record high of 250,853. Sales of passenger vehicles fell to a 20-year low of 486,257 in the year to December.</p>
<p>CommSec Luxury Vehicle index</p>
The CommSec Luxury vehicle index hit record highs in 2016. Sales of 17 luxury marques totalled a record 106,658 units in 2016, up 12.1 per cent on a year ago. Luxury vehicles now account for 9.17 per cent of total vehicle sales and a record 11.50 per cent of passenger cars and SUVs alone.</div>
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<br>The CommSec Luxury vehicle index includes Audi, Aston Martin, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, Maserati, Maybach, Mercedes-Benz, Mclaren, Porsche and Rolls Royce.</div>
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<br>In 2016 record sales were recorded by Audi, BMW, Ferrari, Jaguar, Lamborghini and McLaren.<br><p>Luxury auto sales have been running at a double-digit annual rate for almost four years.</p>
<p>What is the importance of the economic data?</p>
Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.</div>
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<br>The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.<br><p>The Australian Bureau of Statistics provides seasonally adjusted and trend estimates of industry data. The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto &amp; components companies.</p>
<p>What are the implications for interest rates and investors?</p>
<p> Looking forward, policymakers will keep a close eye on how the rebalancing of the domestic economy (away from mining investment) is keeping pace. Inflation and housing activity are likely to be closely watched over 2017. </p>
<p><em>Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a></em></p>
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Investor loans soar, inflation makes a comeback: CommSec's Savanth Sebastian

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<div>As promised, a quick look around the traps at where APRA's cooling measures have slowed investor lending the hardest, and where some or all of the hot air is coming out of the investor market.</div>
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<div>New South Wales saw $5.6 billion of investor loans in September 2015, taking activity back down to the breached for the first time in December 2014 - though as I analysed here previously, owner-occupier lending has (apparently) soared to unprecedented heights in recent months, more than compensating for the decline.<br><br><span><span>Macroprudential measures undertaken to cool housing markets will inevitably have some unintended consequences, one of which may be that lenders demanding high returns on target potential borrowers with existing equity, which in a curiously reflexive manner might temporarily skew lending towards markets which have already outperformed through the cycle (i.e. Sydney).</span></span><br><span><span><br></span></span><span><span>That's one to watch for next year, but for now total lending for NSW housing of more than $14 billion in September was the biggest month on record, even if the numbers were somewhat fishy.</span></span>
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<div>It's a near-identical story in Victoria, with a notable decline in investor lending, but a corresponding leap in owner-occupier lending.</div>
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<span>In Queensland the decline in investor lending has been relatively marked from $2.0 billion in March, although there was a slight rebound in September to $1.67 billion. A spirited increase in owner-occupier lending means that total lending has increased moderately over the past year.</span><br><br><span>Queensland's property markets are something of a multi-speed affair, with certain areas of SEQ - such as some sub sub-regions within Brisbane and the Gold Coast - faring relatively well, but many regional markets decidedly in the doldrums. </span>
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<div><span>Not much in the way of good news to report for Western Australia, with investor lending tailing off sharply in recent months from $1.26 billion in December 2014 to just $0.82 billion in September 2015.</span></div>
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<div>It hasn't been a great time for the South Australian economy in recent years, with the trend unemployment rate of 7.7% way above the national average of 6.1%, while employment growth has been non-existent for years now.<br><br>Fortunes for the state waned further this week when it was finally confirmed that Arrium will cut 250 jobs from its Whyalla steelworks, with further cuts expected from Alinta.</div>
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<br>Despite the ongoing labour market shock, South Australia is home to a number of relatively affordable property markets after so many years of lacklustre growth.<br><br>As such South Australia is also the one state where investor lending is actually in an uptrend on a 12mMA basis, with the $469 million in investor lending in September representing a solid increase on the prior year equivalent figure of $390 million.</div>
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<div><span>The outlook has been looking up for the economy and labour market of Tasmania lately, but a lack of existing equity in the market following no real dwelling price growth for close to a decade appears to have knocked the investor market for six, with volumes declining from a record high $86 million in June to only $60 million in September.</span></div>
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<div><span>The Australian Capital Territory (ACT) continues to meander along, with investor lending pulling back since June here too, declining from a record spike of $224 million to $142 billion.</span></div>
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<span>Finally, there are no positives at all to draw from this data series for the Northern Territory, where investor lending has all but collapsed over the past year from $122 million to $75 million.</span><br><br><span>With elevated vacancy rates and nose-diving rents, Darwin and other parts of the Top End are heading for a potentially sharp and long overdue property market correction.</span>
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<span>Overall, it has become clear that APRA's cooling measures have worked quickly and effectively, knocking out a good deal of riskier investor lending right across the board.</span><br><br><span>The property markets story for 2016 will largely be of to what extent lenders can push up the market share of owner-occupier loans in order to compensate for the evident decline in investor volumes.</span>
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<div><span> </span></div>
<div>
<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>
</div>
</div>
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pwargent-M4siyDbqQY

APRA's traps and investor loans: Pete Wargent

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<div>EXPERT OBSERVER</div>
<div> </div>
<div>OK, first things first. </div>
<div> </div>
<div>I am indeed a so-termed vested interest: I would like to see full employment, stronger wages and household income growth, the Aussie economy growing at least at trend or ideally above trend, and I don't want to see the housing market getting zinged unnecessarily. </div>
<div> </div>
<div>Yep, you got me on that one. </div>
<div> </div>
<div>With these formalities out of the way, I saw APRA's latest ADI exposures today described as 'red alert lending data', very 'concerning', a 'loosening' of lending standards, that should be 'ringing alarm bells' to APRA due to lenders 'breaking their own rules', among various other remarks (source: Digital Finance Analytics). </div>
<div> </div>
<div>For the record, while blog-flaming isn't really my bag, I must wholeheartedly disagree on each and every point!<br><br>Whatevs, I'll post a few deets and you can make your own mind up...</div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Stock of IO loans plunges</span></strong></div>
<div> </div>
<div>Firstly, the flow of new interest-only (IO) loans in Q2 2018 was a meagre 16.6 per cent of residential term loans, absolutely miles below the initially proposed cap of 30 per cent (and a world apart from the 45.6 per cent record high of Q2 2015). </div>
<div> </div>
<div>With far fewer loans written overall from a year earlier in spite of a strong increase in the Aussie population, this represented a modest increase in percentage terms from the preceding quarter.</div>
<div> </div>
<div>However, the actual number of interest-only loans was some 52 per cent lower than in the corresponding quarter of the prior year - and almost 70 per cent lower than the number written at the peak of IO lending in 2015.</div>
<div> </div>
<div>A 'loosening'? Hardly.<br><br>But even if more IO loans were to be written henceforth I personally don't believe that would be <span>a bad thing.</span>
</div>
<div><span> </span></div>
<div><span>The last thing<span> we need <span>is $½ trilli</span>on of IO</span> mortgages being reset with undue haste - unless you actually want to see the housing market get stiffed, which of course many people do - and some breathing space would surely be welcomed by a portion of existing IO borrowers. </span></div>
<p> </p>
<div class="separator"><img src="https://4.bp.blogspot.com/-tFVWEE8Ibxg/W5kafR9EsAI/AAAAAAAAr3M/i525R8a2Vz0RTipYynJRdMnqcv0vtlPHwCLcBGAs/s640/IO1.jpg" width="640" height="372" data-original-height="803" data-original-width="1377"></div>
<p> </p>
<div>Regardless of your views on that, there was another enormous decline in the stock of IO loans in the June quarter, with IO loan balances outstanding now having plunged some $119 billion lower over the past five quarters. </div>
<div> </div>
<div>The share of IO loans outstanding through June 2018 was thus by some margin at the lowest level across the entire data series at about 29 per cent, down from close to 40 per cent in late 2015. </div>
<div> </div>
<div>Note that these numbers only run to the end of the 2018 financial year; at the current trajectory the share of IO loans will likely be around 26.9 per cent by the end of this month, a figure that was truly unthinkable only last year, and the lowest level in decades. </div>
<div> </div>
<div class="separator"><img src="https://2.bp.blogspot.com/-VvYLsKyPgs4/W5kafal-H0I/AAAAAAAAr3c/Z0gyForrg7IQlC8ki_SD-5ePZVQnPQW_wCEwYBhgL/s640/Io3.jpg" width="640" height="374" data-original-height="801" data-original-width="1367"></div>
<p><br><span>A loosening...very droll.</span><br><br></p>
<div>
<strong><span style="text-decoration: underline;">Less and less and less high-LVR lending</span></strong><br><br>Secondly, in relation to DFA's 'red alert' on lending standards, the loan-to-value (LVR) ratios on new loans have been tightening incrementally for the better part of half a decade now.</div>
<div> </div>
<div>Loan volumes are down, there was a miniscule change in Q2 for the share of new loans written at 80 per cent LVR or above, while loans written above 90 per cent LVR or above have never been as low as they are today since the available records began.</div>
<div> </div>
<div>'Red alert'? You must be having a giraffe, surely - we've literally never seen lending standards remotely like it!</div>
<p> </p>
<div class="separator"><img src="https://1.bp.blogspot.com/-myr13CMquKE/W5kafSp7IYI/AAAAAAAAr3I/yRholEdAVYs5ZbZ6AiRGWIEbZtAQeLy0QCLcBGAs/s640/IO2.jpg" width="640" height="368" data-original-height="796" data-original-width="1381"></div>
<div> </div>
<div>Thirdly, low-doc and other non-standard loans are also tracking at the lowest level on record. </div>
<div> </div>
<div>Fourthly, the quarterly flow of new investment loans plunged by the best part of $5 billion year-on-year, so how you conclude a sudden loosening of standards from that I can't fathom (automatic red card for anyone directly comparing volumes from Q1 to Q2). </div>
<div> </div>
<div>And fifthly, a word that is devilishly hard to spell at the best of times, DFA cites loans approved outside serviceability, noting that these should be ringing 'alarm bells' to the regulator.</div>
<div> </div>
<div>Fair suck of the sauce bottle, mate, but this almost certainly represents a timing issue and reflects <em><strong>tighter</strong> </em>lending standards, not looser.</div>
<div> </div>
<div>You can't tell me with a straight face that banks are blithely waving through marginal or borderline applications and then willingly reporting them as such in the current lending environment. Not happenin'.</div>
<div> </div>
<div>'I could go on...', as Jon Culshaw's impersonation of Russell Crowe might drily observe.</div>
<div> </div>
<div>Due apologies for the apparent curtness, but this stuff has a tendency to be uncritically reported by rote, so someone needs to chime in with a few of these inconvenient actualities.<br><br>Much obliged. As you were :-)</div>
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Interest-only loans running at 70 per cent down on 2015 peak: Pete Wargent

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<p>EXPERT OBSERVATION</p>
<div id="post-body-5825783051489187345" class="post-body entry-content">
<div>The most timely JLL report showed that the residential construction pipeline is now shrinking fast on tighter lending criteria for developers and investors.  </div>
<div> </div>
<div>In time this will inevitably lead to tighter rental vacancies, especially as we head into and beyond the traditionally busy Christmas and New Year period, with more Airbnb offerings also set to eat into the rental market through this cycle. </div>
<div> </div>
<div>With the greatest volume of apartment construction through this cycle Sydney and Melbourne will be the last markets to know about the tightening (although when D-Day does come the presently record high population growth in these cities means that the tightening of rentals market may also be felt most acutely).</div>
<div> </div>
<div>We're already hearing more and more stories of failed or delayed settlements, so the slowing in supply could come about sooner than expected. </div>
<div> </div>
<div>The initial impacts will be felt in Hobart, Canberra, Adelaide, and an array of rental markets around regional Australia.</div>
<div> </div>
<div>Indeed, SQM's latest figures showed that rental vacancies had already fallen to the <a href="http://petewargent.blogspot.com/2018/11/lowest-vacancies-since-early-2014" target="_blank">lowest level since 2014</a> by the end of last month, so the process is well underway.</div>
<div> </div>
<div>The HIA forecast today in its National Outlook that housing starts will fall by more than 50,000 from the peak, noting (or lamenting) that:</div>
<div> </div>
<div>'APRA’s restrictions were designed to curb high risk lending practices but we are now seeing ordinary home buyers experience delays and constraints in accessing finance.'</div>
<div> </div>
<div class="separator"><a href="https://3.bp.blogspot.com/-wxY4L0r9wvY/W_H50SPIkUI/AAAAAAAAs8A/nEtQ0ROLbqw-nzYBU5UQ6h7qiDj0VmVbACLcBGAs/s1600/HIA.jpg"><img src="https://3.bp.blogspot.com/-wxY4L0r9wvY/W_H50SPIkUI/AAAAAAAAs8A/nEtQ0ROLbqw-nzYBU5UQ6h7qiDj0VmVbACLcBGAs/s640/HIA.jpg" width="640" height="320" data-original-height="728" data-original-width="1454"></a></div>
<div class="separator"> </div>
<div>Note that all of this is before Labor's proposed changes to negative gearing come about, which were originally designed to slow investor activity in the raging hot markets of 2016. </div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Arrivals hit record high</span></strong></div>
<div> </div>
<div>The ABS released its arrivals and departures figures for the month of September 2018 this morning, which showed permanent and long-term arrivals rising to 823,090 over the year to September. </div>
<div> </div>
<div>This represents an increase of 6 per cent from a year earlier, and is the highest figure on record for Australia (the equivalent figure around the time of the Sydney Olympics was about 300,000, which is a measure of just how popular migration to Australia has become).</div>
<div> </div>
<div>
<div class="separator"><a href="https://2.bp.blogspot.com/-GgP_6qeACl4/W_IH3qhIk-I/AAAAAAAAs8Q/UA8Qz6OuBs4uLZfomR7yzd6SgnPhAQ3gACLcBGAs/s1600/A1.jpg"><img src="https://2.bp.blogspot.com/-GgP_6qeACl4/W_IH3qhIk-I/AAAAAAAAs8Q/UA8Qz6OuBs4uLZfomR7yzd6SgnPhAQ3gACLcBGAs/s640/A1.jpg" width="640" height="372" data-original-height="796" data-original-width="1364"></a></div>
<div class="separator"> </div>
<div class="separator"> </div>
</div>
<div>Short-term arrivals into Australia have also boomed in recent years, rising to a record high of 9.2 million in September. </div>
<div>
<br>Interestingly the growth is no longer being driven by Chinese tourists, with a range of other countries picking up the mantle, including India.<br><br><div class="separator"><a href="https://2.bp.blogspot.com/-9e36O96FObc/W_IIPQ4rEKI/AAAAAAAAs8Y/sauXuXL3M88cp9P4W5h8nuuXZV_WA_JCgCLcBGAs/s1600/A2.jpg"><img src="https://2.bp.blogspot.com/-9e36O96FObc/W_IIPQ4rEKI/AAAAAAAAs8Y/sauXuXL3M88cp9P4W5h8nuuXZV_WA_JCgCLcBGAs/s640/A2.jpg" width="640" height="352" data-original-height="799" data-original-width="1447"></a></div>
<br>Education arrivals were also up by 5 per cent from a year earlier to a record high of 596,400.<br><br><div class="separator"><a href="https://2.bp.blogspot.com/-BeHBJ35BtQ0/W_IKs0Qkn9I/AAAAAAAAs8s/XzTDMdxiWHs0kmY8ed9iJjFEdByWn8HGgCLcBGAs/s1600/Education.jpg"><img src="https://2.bp.blogspot.com/-BeHBJ35BtQ0/W_IKs0Qkn9I/AAAAAAAAs8s/XzTDMdxiWHs0kmY8ed9iJjFEdByWn8HGgCLcBGAs/s640/Education.jpg" width="640" height="374" data-original-height="793" data-original-width="1357"></a></div>
<div class="separator"> </div>
<div class="separator"> </div>
</div>
<div>Finally, at the state level short-term arrivals were up by 4 per cent in New South Wales to 3.45 million for the year to September, but growth was stronger in Victoria (up 8 per cent to 2.3 million) and Queensland (up 8 per cent to 2 million).</div>
<div> </div>
<div>
<a href="https://2.bp.blogspot.com/-BQ5Zsf2TBjQ/W_IIrT42XKI/AAAAAAAAs8g/vzjR8vNOBGA1kafBkeVaYabmGUZesD40gCLcBGAs/s1600/A4.jpg"><img src="https://2.bp.blogspot.com/-BQ5Zsf2TBjQ/W_IIrT42XKI/AAAAAAAAs8g/vzjR8vNOBGA1kafBkeVaYabmGUZesD40gCLcBGAs/s640/A4.jpg" width="640" height="358" data-original-height="797" data-original-width="1418"></a><br><br>Queensland was a little flattered here by the <a href="http://petewargent.blogspot.com/2018/04/gc2018hockey" target="_blank">Commonwealth Games XXI</a>, held at Gold Coast earlier this year...although that all seems like a long time ago now!<br><br><strong><span style="text-decoration: underline;">The wrap</span></strong><br><br>Both short- and long-term arrivals hit record highs for the year to September 2018, with accordingly significant implications for housing market demand over the year(s) ahead.<br><br>Australia's visa programme is tilted towards those aged under 30, so there are dramatic implications for rental market demand here as construction slows, as well as pent up demand for entrants to home ownership over the years ahead. </div>
<div> </div>
<div><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></div>
</div>
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Rental vacancies to tighten: Pete Wargent

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<div>It certainly seems that way.</div>
<div> </div>
<div>New South Wales investor loans burned 49 percent higher than a year earlier in January as investors chase Sydney property prices higher.<br><br>
</div>
<div>In Victoria, investor loans were up by 35 percent, with Melbourne dwelling prices also rising. </div>
<div> </div>
<div>On the flip side, the value of investor loans in Western Australia was down by 16 percent year-on-year. </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/16/A1.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/2017/03/16/A1.jpg" alt=""></p>
<p>In Darwin and the Northern Territory, meanwhile, the value of investor loans has dropped to the lowest level in a decade.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/16/A2.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><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/2017/03/16/A2.jpg" alt=""></div>
<p><br><span>Such can be the reflexive nature of markets.</span><br><br><strong><span style="text-decoration: underline;">Total lending pulls back</span></strong></p>
<div>Overall, January wasn't a particularly strong month for total lending according to the Australian Bureau of Statistics (ABS), with a decline in commercial lending in the month. </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/16/A3.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><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/2017/03/16/A3.jpg" alt=""></div>
<div class="separator"> </div>
<div>After a recent spike in November - a near record month - total lending pulled back quite sharply at the beginning of 2017.<br><br>In fact, the result for total lending at $67.6 billion was a 5-month low. </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/16/A4.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><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/2017/03/16/A4.jpg" alt=""></div>
<p><span>Meanwhile, investors pile into Sydney and Melbourne, fearful of changes being made to legislation.</span></p>
<p class="p1"><span class="s1">PETE WARGENT is the co-founder of <a href="https://allenwargent.com/"><span class="s2">AllenWargent</span></a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/"><span class="s2">blogger</span></a>.</span></p>
<p class="p2"><span class="s3"><em>His latest book is </em><a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx"><span class="s2"><em>Four Green Houses and a Red Hotel</em></span></a><em>.</em></span></p>
<p><span> </span></p>
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Rising prices beget more buyers?

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<p>A quick look at half a dozen of the more interesting housing finance slides for January 2018.</p>
<p>Total housing finance increased by +0.7% in seasonally adjusted terms to $33 billion, but was pretty flat in trend terms, with investor loans continuing to decline and owner-occupier lending growing at +7% per annum to fill the breach.</p>
<p>Click here <a href="https://3.bp.blogspot.com/-M24lH5yOIb0/WqdKC1BohRI/AAAAAAAAo3Y/uStoaGTkvc0KHaEzNHMWx4EbCygq9IxBACEwYBhgL/s640/HF4.jpg" target="_blank">to enlarge. </a></p>
<p><img src="https://3.bp.blogspot.com/-M24lH5yOIb0/WqdKC1BohRI/AAAAAAAAo3Y/uStoaGTkvc0KHaEzNHMWx4EbCygq9IxBACEwYBhgL/s640/HF4.jpg" width="640" height="376" data-original-height="812" data-original-width="1377"></p>
<p>January is generally a quiet month due to summer holidays, but first homebuyers continue to be drawn into the market by concessions, now accounting for a market share of 18% in the month. </p>
<p>Click here <a href="https://4.bp.blogspot.com/-ag8KiMutZ-8/WqdLJLhxNrI/AAAAAAAAo4A/3-pDL-QN38ITRbwAKoRjKZRiNWwSYJ3xQCLcBGAs/s640/FHB.jpg" target="_blank">to enlarge.</a></p>
<p><img src="https://4.bp.blogspot.com/-ag8KiMutZ-8/WqdLJLhxNrI/AAAAAAAAo4A/3-pDL-QN38ITRbwAKoRjKZRiNWwSYJ3xQCLcBGAs/s640/FHB.jpg" width="640" height="382" data-original-height="818" data-original-width="1367"></p>
<p>While first homebuyers are on average struggling to increase their loan sizes due to serviceability caps and stress-testing at above 7% mortgage rates, established owners have been able to use more leverage. </p>
<p>Click here <a href="https://4.bp.blogspot.com/-ruSrZ6NBTT0/WqdKCqS0GnI/AAAAAAAAo3U/j7Bj1E2K1wI0ovyEfh9IzQ9JT_gqM0PqgCLcBGAs/s640/HF1.jpg" target="_blank">to enlarge.</a></p>
<p><img src="https://4.bp.blogspot.com/-ruSrZ6NBTT0/WqdKCqS0GnI/AAAAAAAAo3U/j7Bj1E2K1wI0ovyEfh9IzQ9JT_gqM0PqgCLcBGAs/s640/HF1.jpg" width="640" height="372" style="font-size: 12.16px;" data-original-height="809" data-original-width="1390"></p>
<p>That's especially true in Victoria where the average loan size for non-first homebuyers hit a record high. </p>
<p>Click here <a href="https://1.bp.blogspot.com/-J8LLXGMj_SM/WqdKCR0vYCI/AAAAAAAAo3Q/tt-VaLWXam0tMPaj2XM1cmbUe6deQYlQQCLcBGAs/s640/HF2.jpg" target="_blank">to enlarge.</a></p>
<p><img src="https://1.bp.blogspot.com/-J8LLXGMj_SM/WqdKCR0vYCI/AAAAAAAAo3Q/tt-VaLWXam0tMPaj2XM1cmbUe6deQYlQQCLcBGAs/s640/HF2.jpg" width="640" height="380" data-original-height="819" data-original-width="1377"></p>
<p><strong>Surge of completions</strong></p>
<p>A number of indicators have suggested that the Sydney market saw a huge number of dwelling completions in or around the final quarter of 2017, as construction activity now drops back from record highs and a spike in vacancy rates is observed. </p>
<p>The number of finance commitments for new dwellings is coming down off four-decade highs.</p>
<p>Click here <a href="https://2.bp.blogspot.com/-8h3hCJlrxJM/WqdKDkn_fDI/AAAAAAAAo3c/GJx-yaHcc0c2Eq7JbEfbZMNOUrViqXVdQCLcBGAs/s640/HF5.jpg" target="_blank">to enlarge.</a> </p>
<p><img src="https://2.bp.blogspot.com/-8h3hCJlrxJM/WqdKDkn_fDI/AAAAAAAAo3c/GJx-yaHcc0c2Eq7JbEfbZMNOUrViqXVdQCLcBGAs/s640/HF5.jpg" width="640" height="380" data-original-height="801" data-original-width="1342"></p>
<p>New South Wales has seen more new dwellings financed by homebuyers than ever before over a 12-month stretch, underscoring the point. </p>
<p>Click here <a href="https://3.bp.blogspot.com/-k9QfN15EP3s/WqdKEO_HtDI/AAAAAAAAo3g/_20z2zxy8N4Ik_9evFiPhEKP-GPba0g4QCLcBGAs/s640/HF6.jpg" target="_blank">to enlarge.</a></p>
<div class="separator">
<img src="https://3.bp.blogspot.com/-k9QfN15EP3s/WqdKEO_HtDI/AAAAAAAAo3g/_20z2zxy8N4Ik_9evFiPhEKP-GPba0g4QCLcBGAs/s640/HF6.jpg" width="640" height="388" data-original-height="831" data-original-width="1364"><p><strong>The wrap</strong></p>
<p>Overall, if you piece this together with other figures out recently including from APRA, the stats point toward a surge in apartment completions in Sydney, and investor lending being quelled as first homebuyers are increasingly drawn into the market by stamp duty and other concessions.</p>
<p><span>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and </span><a href="https://petewargent.blogspot.com/" target="_blank">blogger</a><span>.</span></p>
</div>
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