Housing party wrecked by investors leaving early
Major commentators have repeatedly called the end of Australia’s housing market, suggesting that the solid fall in approvals over the last year indicate a market that is due to slump. Latest finance data shows that the significant bulk of the decline has been driven by the exit from the market of investors. Meanwhile, first home buyers are receiving an increased share of loans.
The first chart shows the value of loans to owner-occupiers and investors. The numbers are important here, but it is the experience of 2017 that is not compelling. As the chart amply demonstrates, after the monthly value of new home loan approvals to investors and owner-occupiers reached equilibrium in January 2017 at approximately AUD13.650 billion, loan values headed off in opposite directions.
So significant was the adjustment in the value of loans that by September, the monthly gap had grown to approximately AUD3 billion, even with the September downturn in owner-occupier loans. Still, the total value of new loans was AUD26.612 billion, down just 2.5% on the total in January.
That is hardly a market slump, but the signs are evident that investors are out of the market and there is softness in the owner-occupier loan experience.
Which begs the question, exactly who is taking up the loans? The chart below demonstrates that in large part, the investor slack is being taken up by first home-buyers, especially over the last few months.
It may be that their share of monthly loans was only 11.4% in September 2017 (AUD3.034 billion), but that compares very favourably with 7.1% in January (AUD1.933 billion).
Still, as we commented at the outset, Australia’s housing market appears to have turned down, and not only because of the slowing of new loans to investors. It is to be hoped – even desperately perhaps – that the first home-buyers getting in at the top of the price market are not going to be left exposed by unsustainable repayments in the event of a seemingly inevitable interest rate rise.