AFG confirms first home buyer rout

ScreenHunter_15 Apr. 24 14.56

By Leith van Onselen

Australian Finance Group (AFG) has released its housing finance data for the month of December, which registered a seasonal 21% decline in mortgage applications over the month, but more importantly (since the series isn’t seasonally-adjusted) a 22% increase in the number of applications over the year. It was also the Group’s strongest December on record, with 7,213 mortgage applications (valued at $3,054 million) processed over the month (see next chart).

ScreenHunter_805 Jan. 14 13.14

AFG also reported a further shrinking of the first home buyer (FHB) mortgage share in December, driven by weakness in Victoria following the recent removal of grants on pre-existing dwellings:

  • National: 10.2%, down from 12.5% in December 2012;
  • New South Wales: 3.5%, down from 4.2% in December 2012;
  • Victoria: 8.7%, down from 16.5% in December 2012;
  • Queensland: 6.2%, up from 4.5% in December 2012; and
  • Western Australia: 21.8%, down from 23.2% in December 2012.

Investors are now driving new mortgage demand, with their share of mortgages at 38.8% in December, according to AFG (see next chart).

ScreenHunter_806 Jan. 14 13.34

Below are the investor shares by major market:

  • National: 38.8%, up from 38.0% in December 2012;
  • New South Wales: 48.9%, up from 46.3% in December 2012;
  • Victoria: 36.6%, down from 37.2% in December 2012;
  • Queensland: 34.9%, down from 35.9% in December 2012; and
  • Western Australia: 30.8%, up from 30.5% in December 2012.

As noted previously, some caution should be exercised in interpreting AFG’s figures and extrapolating its results to the overall mortgage market, as measured by the Australian Bureau of Statistics (ABS).

AFG’s data measures mortgage applications, whereas the ABS measures actual mortgage commitments. According to AFG’s General Manager of Sales & Operations, Mark Hewitt, just over three quarters of applications on average become mortgage commitments, although this figure can obviously fluctuate month-to-month. AFG’s market share has also been rising in recent years.

Therefore, while AFG is a useful guide as to the strength of mortgage demand, its results do not necessarily translate to the overall mortgage market as captured later by the ABS.

To illustrate, consider the below chart showing how the growth of AFG mortgage applications has diverged significantly from ABS mortgage commitments since November 2009:

ScreenHunter_808 Jan. 14 13.40

Nevertheless, the AFG data supports yesterday’s ABS housing finance release for November, which revealed a continued disappearance of FHB’s from the mortgage market.

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14 Responses to “ “AFG confirms first home buyer rout”

  1. Ortega says:

    The routing of FHB’s remains, for me, the most overt indication of how unaffordable housing has become for average Australians.

    I’d be very nervous as an investor.

    • Lef-tee says:

      I agree it’s become increasingly unaffordable – but we still don’t really know how many first-timers are actually buying. I think their numbers are very likely soft but we really do need an accurate means of measuring them. As anecdotally presented here, there are first timers buying who are not being recorded as such.
      But it makes me wonder – if it all comes down to no longer ticking a box because a grant has been withdrawn……why are first home buyer numbers still being recorded as being above 0% in such states? On the face of it, it seems as if they really are collapsing under the investor barrage but I don’t have enough info to make a decision.

      • I wondered how long it would take for a comment from the troll-nest seeking to undermine the veracity of FHB statistics. Allegedly ‘they’ and two mates didn’t tick the FGB box when they allegedly applied for a loan, thereby rendering all FHB data wildly inaccurate, misleading and unreliable. The FHB data is good enough for our purposes. The steep swing down is NOT the failure of some FHB’s to tick a box, it is demonstrably the counterpart of the strong buying by investors.

        On the matter of substance, the rout of the FHB’s signals the Australian land market moving into a new and dangerous phase. Fresh money is excluded. The reliance on borrowing as existing owners trade among themselves is elevated. How long can investors keep this momentum up? Six months? Then what? We know FHBs have turned away to study or sharemarket investing or travel or something. It will take more than the passage of time to lure them back. Repricing might work.

        Don’t Buy Now!

      • Lef-tee says:

        Not a troll David – I agree with the majority of your sentiments regarding housing. See my post below.
        As much as I would like to believe that the situation is reaching such ludicrous levels as to lock out the next generation from home ownership (not because I think that’s a good thing but simply to cofirm that I am right in thinking that we have seriously gone down the wrong path when it comes to housing!) we also need actual proof in order to be certain of things.

      • Peter Fraser says:

        Lef-tee the FTB’s still get a grant if they build or buy a new home, so it won’t reduce to zero while there is still a grant.

        The NSW FTB figure of 3.5% looks right to me for those building or buying new homes. It may grow as OTP units bought some time ago begin to settle.

        David – the trolls nest said hi!

      • Natural Sceptic says:

        DC, to question the underlying accuracy of statistical data is not being a troll, it is part of a proper scientific process. Those who fail to question blanket statements are those I call gullible.

        Obviously, this will only be another ‘allegedly’ to you, however I am also a recent FHB, and was not recorded as such on the loan application, which was filled out by the bank lending officer based on my answers (and no, that wasn’t one of the questions they actually asked me, though they were aware I was a FHB from conversation).

        When I reviewed the final application before signing, I saw that whether I was a FHB was marked with a no, and I asked why that was the case. The officer said that there was no point to recording it any more, since there was no special treatment.

        So it is not simply a matter of FHB’s not ticking the box themselves, it is also potentially a matter of bank officer doing the same. Why that is the case I cannot say, whether it is because (for some reason) there is more work involved, or if the bank has some interest in reporting lower FHB numbers (for reasons I don’t know) and has so instructed their lending managers.

        Simple rational thought will tell you that the lowering of the FHB statistics is certainly a combination of the two factors of decreasing housing affordability, and the statistics no longer capturing all the FHBs.

        We have no idea what the balance is between the two and couldn’t without going back and confirming whether recent approvals are FHBs or not in a separate / independent survey, but clearly both factors are at work.

    • nexus789 says:

      Could be a double whammy at some point in terms of declining asset values and softer rental incomes. Possible rush to off load assets to downsize portfolios.

      • Lef-tee says:

        For the sake of my child, I can only hope that happens. Otherwise, buying a house may end up becoming an intergenerational task with increasing numbers of young people unable to afford to do so without some kind of assistance from parents.

        What I meant by the question in the previous post is that if first home buyer numbers are calculated entirely by “tick the box if the borrower recived this grant”, then why are they still being recorded at all after such grants have been removed? Is it only the ones who build new homes who are being recorded? I’m guessing that a first time buyer who builds a new house probably has greater means somehow than your average young couple wanting a house since building is a pretty expensive prospect.
        The rather woeful current FHB numbers might be a fairly accurate picture of what is actually occuring.

    • ponzoid says:

      FHB might have gone walkies, but investor syndicates are into it.
      How much money is being poured into the market by foreign investors linked in with local sydnicates?
      Liberal party does not understand the gambling mentality of offshore investors. Or maybe they do.

  2. JohnsonM says:

    Thanks, nice article. But, shouldn’t the legend for the red line on the bottom graph say ‘AFG Mortgage Applications’?

  3. thomickers says:

    Good news for you Sydney future FHBers.

    In 2-4 years time 4 properties may appear on the market and they are only 10-20km east of Sydney’s CBD. Ideal for genuine FHBers.

    I am currently looking into the financial position of prospective clients age early 60s.

    They had a financial plan done by another company done in June 2011 (the plan was good but not implemented). Their current position at the time was $3 million PPOP and 5 properties avging $650k. total LVR 80%. They were forced to do 1 of 2 things to save themselves … sell the IPs or sell the PPOP. They decided to sell the PPOP instead of the IPs.

    2.5 years on they are still @ 75% LVR on their IPs and they have a 50% LVR mortgage on a small unit worth $500k and is their PPOP worth.

    Paying 2/3rds of your income on IPs doesn’t get you wealth IMO.

    • flyingfox says:

      How do you even get into such a situation? Appreciation on their PPOP would ensure that this didn’t happen … hmmm

      • thomickers says:

        I have a feeling they did a shitty mistake (in hindsight).

        The Sydney high-end market was poor in 2011 (-20% decrease in prices was not too uncommon) and now it is back up.

        selling IPs would have only triggered some minor CGT but they obviously like reducing income tax(through self-financial-harming).

        I have given the adviser a rough idea that they are a waste of time…

  4. FactOrFiction says:

    Just a quick reflection on how this story is playing out to highlight the problem with single scenario theories…

    There was a time when the prevailing view was that, in order for prices to grow, there need to be a hoard of FTB to buy properties from upgraders. The logic was that diminishing group of FTB can only lead to falling prices. Then someone on this forum mentioned that it is not out of the question that investors could step in to replace FTB (was it Dam?). But if I recall correctly, that opinion was mostly dismissed.

    Fast forward a year or so and this scenario has just fulfilled. A lesson in this for all of us trying to peak into the future – we have to be flexible with our opinions when facts change (plagiarised from some famous dude).