AFG: Investor demand goes nuclear

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By Leith van Onselen

Australian Finance Group (AFG) has released its housing finance data for the month of March, which registered a massive increase in monthly mortgage applications, with both the number and value of applications also at record highs.

The number of mortgage applications rocketed by 14.7% in March and were up 21.3% over the year to 11,235, whereas the value of applications jumped by 19.9% over the month and by 29.3% over the year to $5,236 million (see next chart).

ScreenHunter_6865 Apr. 02 08.12

According to AFG:

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Volumes were particularly strong in NSW which recorded a 47% increase on March 2014 ($1.9 billion processed) and VIC, where a 30% greater volume was processed ($1.2 billion). Increases reported for other states were SA (23%), QLD (16%) and WA (11%)…

Mark Hewitt, General Manager of Sales and Operations says: ‘What happened in March is really the story of Sydney and Melbourne. Volumes in other cities were strong but unspectacular. The combination of rate expectations, with a traditionally buoyant month for property sales, made March a stand-out month.’

Investor mortgage demand surged to a record high 41.70% in March, whereas the share of mortgages going to first home buyers (FHB) fell to 7.4%, but was above December’s record low 6.9% (see next chart).

ScreenHunter_6866 Apr. 02 08.15

Investor demand was especially strong in New South Wales (52.9%), followed by South Australia (37.7%), Victoria (36.7%), Western Australia (33.6%) and Queensland (33.3%).

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By contrast, FHB demand was particularly weak in New South Wales (2.4%), followed by South Australia (4.6%), and Queensland (5.0%).

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.

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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_6867 Apr. 02 08.20
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Nevertheless, the AFG data does show that investors remain the primary driver of Australia’s housing market, with first home buyers still languishing. The massive surge in mortgage applications also confirms recent strong auction data, which boomed following last month’s interest rate cut.

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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.