Home loans soften – owner occupiers doing most of the work

The total value of new loans for housing was AUD4.062 billion in March 2018, down 7.8% on the prior month, but lower by a softer 1.9% compared with March 2017. Demonstrating that a month is a short period to assess, the value of loans over the full year was up 10.8% on the prior year. The main driver of the year’s growth continues to be the role played by Owner Occupiers, both for new construction, but in particular for purchases of existing dwellings.

Despite the relative strength of loans over the last year, March 2018 saw a different experience. The chart below shows the relatively sharp drop in the value of loan approvals.

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To go straight to the dashboard and take a closer look at the data, click here.

It is tempting to examine the monthly data as though it is the be-all and end-all, but in reality, we need to avoid analysing just the monthlies, when we have solid longer run data. 

As descried above, the total value of loans grew a strong 10.8% over the year-ended March, reaching AUD52.006 billion. It is true that the value of loans to investors rose 6.4% over the year, but their share of the total declined, as loans for owner occupiers rose very strongly.

Over the same year, Owner Occupier loans for Construction rose 10.6%, but the strongest growth was in loans to Owner Occupiers for purchases of existing dwellings. They grew 15.8% over the year.

As a result, the total value of loans to investors continued to decline. In March 2018, they accounted for 42.5% of the total value of loans, down from 49.3% in January 2017.  We can see this in the chart below.

fig 9

To go straight to the dashboard and take a closer look at the data, click here.

First home buyers are - in this new market situation - faring relatively well. At 12.2% of the total value of loans, their share has sipped from the peak of 13.8% in November 2017. As the green line shows, their role remains relatively minor and well below its long run peak.

Despite the blip down in the value and proportion of loans to investors, it remains clear, as can be seen below, that after a period when the correlation between the value of investor loans and the value of owner occupier loans for construction became disconnected, the growth correlation has returned over the last year or more.

fig 10

To go straight to the dashboard and take a closer look at the data, click here.

Investors are playing a relatively consistent part in Australia’s new housing construction market, and have been doing so for the last year or more. What would be interesting is data on what property types they are getting their loans for. It is always assumed – on good basis – that the emphasis is on multi-storey apartments, but approvals of them have slowed considerably. That raises the question of where the investor loan money is going.

Sure, much of it will still be into apartments, but it seems likely investors are migrating into the Townhouse market, and perhaps even increasing their presence in free-standing dwellings.

Meantime, as the details show below, but only through to February 2018, loans for alterations and additions have fallen sharply, with the largest proportional monthly decline since January 2011. Lending into the renovation sector is falling, having declined 10.3% in February compared to always soft January. But this data can be very volatile, so for full analysis, we will wait until there is full quarter data.

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To go straight to the dashboard and take a closer look at the data, click here.

It is important not to shelter in comfort behind data such as that for loans for alterations and additions, because it doesn’t tell the full story. Compared to a year ago, annualized renovation loans were 4.7% higher over the year-ended February, a factor that the Reece Group for instance has reported as a major driver of its recent performance in Australia – and its projected growth for the coming year. Peter Wilson, Reece’s Chief Executive Officer said:

“The renovations part is expected to be buoyant for the next number of years.”

Overall, lending for housing is becoming more febrile. In a market that sees patchy but still satisfactory approvals and in which there are expectations several major markets are over-priced, less consistent patterns for finance are probably to be expected.