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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 11 March 2015

Monthly finance commitments burst through $30bn

Investor lending soaring

The ABS released its Housing Finance data for January 2015 today, which showed a minor "fall" in lending in the month.

Anyone can torture figures until they confess, of course, but in reality the total monthly value of finance commitments has only breached $29 billion on five occasions (those five occasions being the last five months) and has breached $30 billion just twice (those two occasions being the last two months).

The apparent decline in the month of January 2015 was as much about the rip-snorting result in December 2014 as it was any genuine weakness in the figures.

Let's take a look in 3 short parts.

Part 1 - The two-speed lending market

What we can say about the January 2015 figures is that owner-occupier lending activity in aggregate seems to have stumbled onto a plateau.

On a 4mMA basis the number of new owner-occupier commitments written has become mired at ~52,000 for the best part of a year, which is well below the levels of activity we saw in the years leading up to 2007, and particularly so in population-adjusted terms.

However, one should not overlook the sheer strength of the loan volumes being written in dollar value terms.

In rolling annual terms the value of owner-occupier commitments is up by almost 11 percent as capital city homebuyers chase rising prices.

Meanwhile the level of investor lending is rollicking along to record heights, up by a monstrous 24 percent in rolling annual terms.

If current monthly trends persist the rolling annual value of investor loans could comfortably run another 10 percent or more higher if APRA doesn't opt to yank on the rip cord.

Indeed, ex-refinancing the value of new loans written to investors has now exceeded the equivalent figure for owner-occupiers, which is unprecedented in Australia.

Part 2 - State versus state

I'll analyse where investors are buying after the Lending Finance release on Friday, although I can tell you right now for free that the answer is "mainly Sydney".

For now let's take a look at the number of owner-occupier loans written, which shows that the steadying in activity levels is becoming apparent almost across the board.

However, the key point is that in Sydney and to a more moderate extent Melbourne and Brisbane, homebuyers are now chasing rising prices.

In New South Wales and Melbourne the monthly volume of finance commitments has increased by 12 percent and 11 percent over the past year respectively.

Although mortgage volumes are of course miniscule by comparison, Tasmania has also seen a solid 16 percent uplift in finance commitments.

On the other hand the alleged Adelaide property 'boom' is clearly a figment of the media's vivid imagination, with monthly value of owner-occupier finance commitments declining moderately over the past 13 months - if there is to be a property market surge in the South Australian capital it must be driven by the investor set.

Adelaide has major unemployment problems in some of its fringe suburbs.

It had been clear to anyone who can read an Annual Report that car manufacturers had reported net losses totalling hundreds of millions of dollars since FY2005 - but one can only feel sympathy for those involved at the sharp end given the ongoing circus related to subsidy cuts and pledged funding assistance. 

Housing finance commitments for owner-occupiers in Western Australia and the Northern Territory have also been in reverse gear over the past few months as the mining investment boom unwinds.

Part 3 - New dwellings and construction

Moving onto new dwellings and construction, the number of new owner-occupier dwelling commitments appears to have passed its peak. 

Not dissimilarly the value of new dwelling commitments has hit a plateau. Admittedly I'm not totally convinced of how relevant this data is today given the superfluity of new dwelling stock sold to investors and offshore buyers in Asia.

While the majority of finance commitments are written for established dwellings and these naturally outweigh the number of new dwellings commitments, there has been a very strong pick-up in construction loans.

Looking at construction loans by value, low interest rates have driven loan volumes to record highs, with December in particular recording a unprecedented spike.

The Wrap

A robust release in terms of the volume of loans written, but as ever the devil is in the detail.

The figures are commensurate with very strong gains being recorded in Sydney's housing market in 2015, and somewhat more moderate gains in Melbourne, Brisbane and surprise package Hobart.

Elsewhere, property markets generally look soft despite the widespread availability of 60 year low standard variable rates.

Following another gargantuan result for investment lending of ~$12.5 billion in the month of January 2015, the Lending Finance release on Friday will shed more light on where speculators are targeting price gains, but last month's figures suggested that Sydney is on course to be investor central once again in 2015.


Stay tuned for a look at the all-important February 2015 Labour Force figures tomorrow. 

Last month we saw the seasonally adjusted unemployment rate spike to 6.4 percent and only moderate jobs gains in trend terms.