Investors Keep Powering The Housing Market
By CoreLogic RP Data on 9 Jun 2015
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The Australian Bureau of Statistics (ABS) released housing finance data for April 2015. The seasonally-adjusted data showed that over the month there were a total of $32.7 billion in housing finance commitments with the value of commitments increasing 2.9% over the month and by 18.7% year-on-year.
The raw data provides further insight into the make-up of mortgage lending although the figures are slightly different to the seasonally-adjusted data. As the first chart shows, for the 26th straight month, investors account for the greatest proportion of overall lending while investors and refinances are the only segment of lending recording any significant increase. In fact, over the past year the value of investment commitments has on average been more than 4.5 times greater than the value of commitments to first home buyers.
The seasonally-adjusted data shows that in April there was $19.2 billion in commitments to owner occupiers and $13.5 billion in commitments to investors. Keep in mind that the owner occupier figure includes both commitments to owner occupiers (which include first home buyers) and refinances by owner occupiers. Over the month, the value of housing finance commitments to owner occupiers rose 3.1% to be 15.6% higher year-on-year. The investment segment of the market has been growing at a much more rapid pace than owner occupier lending, over the month the value of investment housing finance commitments rose 2.6% to be 23.6% higher year-on-year.
Focussing solely on the owner occupier segment of lending there was $19.2 billion in lending to owner occupiers in April 2015. The data was made up of $1.8 billion (9.6%) in commitments for construction of dwellings, $1.0 billion (5.3%) for purchase of new dwellings, $6.6 billion (34.2%) for refinances of established dwellings and $9.8 billion (50.9%) for the purchase of established dwellings. Overall, there was $6.6 billion worth of refinancing and $12.7 billion in new lending. Over the month, the change in the value of owner occupier housing finance commitments was: +4.6% for construction, +3.5% for purchase of new, +4.5% for refinances and +1.8% for purchase of existing. Year-on-year, the change was recorded at: +5.4% for construction, +14.0% for purchase of new, +38.8% for refinances and +5.8% for purchase of existing. The 38.8% year-on-year increase in refinance commitments is the largest since January 2004. It highlights that many mortgage holders are shopping around for a better deal on their mortgage. It may also reflect that people are re-drawing their equity to re-invest or fund their lifestyle.
Looking at the investment segment, the $13.5 billion worth of commitments in April was made-up of $0.9 billion (6.4%) for construction of new homes and $12.6 billion (93.6%) for purchase of existing homes. Over the month, the value of housing finance commitments to investors for construction of new homes fell -9.1% while commitments for purchase of existing homes rose 3.5%. Year-on-year, commitments for construction of new dwellings rose 25.6% compared to a 23.4% rise in commitments for purchase of existing homes.
The data for both owner occupiers and investors shows that very little is actually going towards new housing. Just $3.7 billion of the $32.7 billion in commitments was to new housing representing just 11.4% of all housing finance commitments. Over the past two years, the value of housing finance commitments for new housing stock has increased by 31.2% compared to a 43.9% rise in commitments for existing stock. We have recently seen building approvals hit new record high levels and it does pose the question just who is buying all this new stock. Remember that the housing finance data is only collected across Australian Authorised Deposit-taking Institutions (ADIs) so overseas buyers are not captured in this data. Of course it is perfectly legal for overseas buyers to buy off-the-plan or newly built housing stock. This data suggests there is a lot of purchasing taking place by non-residents given the ramp-up in new construction appears misaligned to the commitments data for new homes.
The housing finance data shows that investors and owner occupiers refinancing their existing mortgages remain the clear drivers of the current housing market. Over the past month we have seen a number of ADIs changing their lending criteria and this may start to result in a cooling of the investment segment of the market. It is encouraging to see some strength returning to the owner occupier segment of the market with new loans to this segment up 3.1% so far this year after only increasing by 5.6% throughout all of 2014. If the investment segment does begin to slow over the coming months it will be important to see a pick-up in the owner occupier segment of lending.
