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

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Sunday, 14 February 2016

Housing market in good health

Record housing finance

I took a look at the Housing Finance figures for December previously here. In this post, I'll just add a few sundry thoughts.

There are always plenty of angles put forward for why the housing market must be struggling, or will be set to struggle in due course, true enough.

And indeed, some locations are struggling, no question about that - mainly comprising mining towns, or regions being heavily impacted by the ongoing collapse in mining investment.

Anecodotally, mortgage lending has also perhaps been a little bit slower in January. 

It was interesting to note, however, that the raw original data (without seasonal adjustments applied) recorded $35,961,746,000 of dwelling finance commitments in the month of December, an increase of $2.3 billion or +6.7 per cent from one year ago.

I'm no incurable optimist, but there's not too much wrong with the health of the lending market on that evidence. In fact it was the highest figure ever recorded for a single month.


Refinancing is evidently a complicating factor, as you can see in the chart above, but the value of loans actually advanced in December was up by +24.6 per cent to its highest ever level at $23.8 billion.

I noted on Twitter last week that the average loan size figures seemed to have gotten a little ahead of themselves, and sure enough there was a pullback in December to a somewhat more believable $377,600, althought this is still +11.2 per cent higher than one year ago, and the figure still looks rather overstated. 


Construction continues

Much has also been written about the imminent downturn in residential construction sector. 

In one sense this is a truism since construction activity is also now tracking at its highest every level, and clearly this dynamic cannot continue in perpetuity. 

However, the most recent housing finance figures suggested that there is still a fair amount of juice in the tank. 

The rolling annual value of commitments for investor construction, which is a handy indicator if not anything more concrete than that, is up by +27.6 per cent from one year ago. The equivalent figure for owner-occupier purchase of new dwellings is up by +15.7 per cent.


The number of commitments for new dwelling purchase also jumped in December to 3,579 in original terms, and you would have to go back a long, long way to find a stronger monthly result than that. 


Major renovation activity has been marginally improved in recent months from 2014 levels, but in reality this has been almost exclusively a Sydney trend through this cycle to date. 



First time buyers are active

The latest figures showed an increase in first homebuyer owner-occupier activity of +4.6 per cent to 15.1 per cent of all loans written. 



If you include first time buyer investors from industry surveys, the total figure for first time buyers is tracking around 50 per cent higher than this.

The wrap

Overall, it is clear that there has been a behavioural shift between lenders and borrowers towards favouring owner-occupier mortgages over investment loans, the lines between which have become hopelessly blurred.

The headline figures show that in aggregate housing finance remained relentlessly strong through 2015, even if some mining regions are feeling the burn.

According to CoreLogic-RP Data Sydney posted Very solid preliminary auction clearance rate of 78.6 per cent from 469 auctions, well ahead of the preliminary clearance rate for Melbourne at 72.6 per cent.

Vendors seem a bit more realistic, and these are still relatively low volumes. Most signs point to a steady Sydney market in 2016.

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Westpac's forecasts for economic growth from 2015 to 2017: