April Fools' Day yesterday, and AFG released its latest Mortgage Index. I don't believe the two events are connected.
AFG captures about a tenth of the Australian mortgage market (11% at the last count), and as one of Australia's largest mortgage aggregators by volume, it's always worth a look for a sneak peek of what their numbers have to tell us about what lies ahead.
In other words, AFG's numbers may be to some extent indicative of what we will see the Australian Bureau of Statistics report in 6 weeks' time, while of course recognising and accepting the possible distortions relating to shifts in market share or the effects of sample volatility.
The numbers you can find on AFG's release here, but, a word of warning, the presentation is a bit dry and tends to make your eyes bleed.
Easier to see in a chart, I reckon, so here you go (click chart):
9,264 mortgages were written by AFG in the month of March, which is close to, but not quite as many as the record 9,564 written in October 2013.
The mortgage value sold at $4,048 million was also close right up there with AFG's record set in October 2013 of $4,057 million.
In fact, let's zoom in a bit on those monthly mortgage values sold figures (click chart):
Mortgage sales tend to be seasonal, of course, but AFG were very close to a record in March 2014, and, significantly, the figure was 27% higher than a year ago.
The implication of this? Well, it's very difficult to say of course, but if the Reserve Bank doesn't pull a handbrake by hiking the cash rate from its present stimulatory level of 2.50%, we could potentially see new record mortgages sold when October rolls around again.
The dollar value of the average mortgage has risen sharply over the past year in Australia (red line), and it's pretty obvious what has been driving that trend since the correlation is so strong.
That is, Sydney mortgages (click chart).
With loan sizes in New South Wales breaking an all-time high of $529,763 in March - with an average loan to value ratio of only 64.6% - this suggests to me a continued pressure on Sydney's property markets, particularly around the median priced sector, which is indeed what we have been seeing at auctions.
Perhaps the main story arising from this release, though, is the percentage of loans written for investors, which has risen to an all-time record high for AFG of 40%, being 3,384 of the loans written in the month of March.
That is, two in every five loans in March 2014 were written for property investors and not for homebuyers (click chart).
The press loves to depict this as greedy Baby Boomers devouring their young by cornering the market.
Is that what is happening? Yes, certainly there is an element of that, and there may also be an element of foreign ownership sliding under the radar, although factual data on that appears to remain tantalisingly elusive.
However, one thing which we are seeing on the ground over and over again - in Sydney at least - is that younger buyers (by which I actually mean anything from ranging 25 to 40) are electing to rent where they live and buy an investment property instead.
I'm not sure that it's a trend which will reverse in a hurry either, given that younger generations are reportedly changing jobs and careers more rapidly than ever before.
It's a perennial challenge for Sydney. So many young people, as is absolutely their right, demand a lifestyle which involves living within a narrow radius of the City, and are often more than prepared to rent a dwelling in order to achieve that.
The desire to own property, perhaps due to conventional wisdom passed down from the generations above, remains strong, however.
Were this demographic trend to continue, we'd expect to see the home ownership rate fall, and a building pressure on property markets in inner ring suburbs.
And finally, just to note that the percentage of fixed rate loans may now have passed its peak, sliding to around 24% in the month down from above 30% a year ago.
Property buyers appear to have made their mind up about the likely future direction of interest rates, and they don't seem to think they'll get much more attractive borrowing rates than they are seeing now.