NSW kills housing finance recovery

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By Leith van Onselen

The Australian Bureau of Statistics (ABS) released the February Housing Finance data this morning, which registered large falls on the back of the hangover caused by the 31 December expiry of New South Wales (NSW) first home buyer (FHB) stamp duty concessions.

As I noted previously, much of the recent bounce in housing finance commitments was due to the NSW Government’s announcement in September 2011 that it would end the generous stamp duty concessions provided on pre-existing dwellings on 31 December 2011. Predictably, this announcement led to a surge of buying from NSW FHBs in the three months to December, which also acted to push-up the national figures. However, with the NSW stamp duty concession now over, first home buyer demand fell sharply in both January and February, reducing overall finance commitments in the process.

According to the ABS, in seasonally adjusted terms, the number of commitments for owner occupied housing finance fell by -2.5% in the month of February, with the total value of dwelling finance commitments excluding alterations falling by -1.3%.

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While the fall in finance commitments will be no shock to MacroBusiness readers, it appears to have shocked Commsec’s analysts, who had expected the number of loans to rise by 5% in the month.

Below are charts summarising the situation at the national level. The first chart shows a breakdown of the number of housing finance commitments by component. You can see that much of the increase in housing finance commitments over the past year has been driven by refinancings:

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Nevertheless, until December 2011, the number of housing finance commitments (excluding refinancings) had trended upwards for 10 months. However, over the past two months, the number of finance commitments (excluding refinancings) has fallen by -6.6% and remains -16% below the 5-year moving average:

Much of the upswing in housing finance commitments to December 2011 was driven by increased activity from FHBs – a cohort that had increased their share of total owner occupied housing finance commitments from 16% in February 2011 to 21% in December 2011. However, over the past two months, the FHB share has fallen back to 17%, which has helped to drive overall finance commitments lower:

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As noted above, the fall in the share of FHBs has been driven primarily by a slump in demand from NSW FHBs, although falls in FHB share in Western Australia (20% down from 22% in January) and Queensland (19% down from 21% in February) also contributed to the overall decline:

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At the overall state level, NSW experienced the heaviest falls in finance commitments (excluding refinancings) on the back of the sharp drop in FHB commitments; although declines were widespread across the mainland (Note: data is not seasonally adjusted):

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As you can see, the overwhelming majority of last year’s upwards movement in finance commitments and the latest falls have been driven by NSW.

Unfortunately, the ABS only provides the value of investor finance commitments. This series rose by 4% in February, partly offsetting January’s 7% fall:

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As I noted in prior months, the overall upswing in housing finance commitments to December 2011 was driven, to a large extent, by increased NSW FHB activity as buyers rushed to beat the 31 December 2011 deadline for the removal of stamp duty concessions.

Now that this deadline has passed, we are experiencing a sharp pull-back from NSW FHBs, which is acting to reduce overall finance commitments. To me, the data confirms the underlying weakness of the Australian housing market.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.