Pete Wargent blogspot

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

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Tuesday, 9 June 2015

Housing finance - kaboom

Housing finance record high

Market consensus from economists had called for a 2 per cent decline in Housing Finance in April, for some reason.

This was presumably partly due to the March result being such a rip-snorter.

Whatever the drivers or the underlying theories, market consensus was unsurprisingly way below the mark, with the April result blazing $0.9 billion higher to easily the greatest level ever at $32.7 billion.

Total housing finance burst through $30 billion for the first time in December 2014, and has being rising at a fast pace ever since.

I predicted that we'd hit close to $33 billion back in April, based upon a combination of scuttlebutt, the trend in the figures being reported by Australian Finance Group, and more scuttlebutt.

OK, so we didn't quite hit a record $33 billion this month, but at $32.712 billion, we certainly weren't that far off.

One of the most notable trends through this cycle has been that the number of owner-occupier loans written has not been nearly as high as we have seen at previous market peaks.

I've smoothed the number of owner-occupier mortgages on a 4mMA basis below.

The chart shows that with owner-occupier approvals rising by 1 per cent in April, the number of owner-occupier loans coming in to the market is once again trending upwards.

One of the main reasons that we haven't been seeing 60,000 or more loans per month written to owner-occupiers is that more and more first-timers have elected to purchase an investment property as their first step on to the ladder, particularly in Sydney (and to some extent, Melbourne).

Given how often young people are expected to change jobs and even careers, it makes a lot of sense for a proportion of first time buyers.

The value of owner-occupier loans surged by 3.1 per cent in April, some way ahead of the 2.6 per cent gain in investment loans for the month.

However, over the course of the cycle, the eminence of investors has been abundantly clear.

Sydney leads the way

The value of owner-occupier loans written in New South Wales is turning nearly vertical on my chart below.

In April a thumping  seasonally adjusted $6.6 billion of mortgage finance was approved in the state, up from $5.4 billion in the prior year comparative period (and in April 2013, the figure was just $4.7 billion, which gives an idea of the persistent pace of the increase).

In short, that Sydney's median house price is heading to $1 million is now baked in, since the harbour city boom is now no longer an investors-only phenomenon.

That said, the actual number of owner-occupier loans written in New South Wales is still well below the levels we have seen previously, simply because such a dominant percentage of today's buyers are investors.

In terms of the other states and territories, most saw an uptick in the number and value of loans written, with Queensland and Victoria faring particularly well in April, but activity levels in Western Australia appear to be trending down.

In the minnow states the number and value of owner-occupier loans increased, if only marginally.

The wrap

The remainder of the data revealed some interesting trends which I will run through in more detail another time.

In particular that the number of loans for the purchase of new dwellings (+1.6 per cent) and for construction (+4.3 per cent) picked up sharply, reflecting that low interest rates are biting on those sensitive sectors as expected.

But the standout trend from these numbers was that the Sydney market is blazing ahead, with many more buyers flooding into the market than vendors, which can surely only result in one outcome.

Heron Todd White joined me this week in hinting that the Sydney market could actually accelerate towards its peak in the coming months, rather than slow down, as has been widely predicted just about everywhere since 2013.