AFG – Mortgages bouncing in March

February’s data for housing was obviously terrible. However if we can take AFG’s latest report on mortgage issuance for March the market may still have a bit of a run left in it. Well at least in NSW.

Mortgage sales during March saw a recovery from the record lows of January and February, but figures were still 9% lower than those recorded a year ago, according to AFG, Australia’s largest mortgage broker. The AFG Mortgage Index shows that the company processed $2,513 million of home loans in March – up 22% on the February figure of $2,053 million, but still 8.9% lower than the $2,760 million arranged in March 2010. AFG has 10% of the national home loan market and its figures are usually strongly indicative of ABS statistics published six weeks later (Source: ABS and AFG data).

New South Wales bucked the national trend, recording exactly the same figure for mortgage sales in March 2011 as March 2010. Elsewhere South Australia saw a slight year on year softening (-2.7%) with greater differences recorded for Western Australia (-10.9%), Victoria (-11.7%) and Queensland (-15.4%).

New South Wales also showed the highest level of investor activity, with 40.2% of all new home loans being processed for investors – well above the national average of 34.7%.

Mark Hewitt, General Manager of Sales & Operations says: ‘After two months of extraordinarily subdued mortgage markets, we’re now seeing a slight return of buyer confidence. The RBA holding off further rate rises has given some sense of normality, and while the lender wars haven’t encouraged many people to switch, at least there is now a feeling that lenders are trying to be competitive. In our view, last month’s banning of exit fees will have little, if any positive effect on the market in the short term, and will certainly hurt non-major lenders going forward. What’s needed, right now, is a strong dose of economic confidence.’

The AFG Mortgage Index shows that refinancing has remained steady at 36.9%, and if anything has declined since last year, suggesting that consumers are sceptical there is any real benefit to changing lender.

AFG says it represents about 10% of the mortgage market and although they are a brokerage service I have noted many times that their reports are a good leading indicator for the ABS figures that are released 6 weeks later. If these figures are a correct representation of the housing credit market then it is only Queensland that is really suffering at this point.

However as usual nothing is that simple. This data is at odds with statements being made by the banks and other information I have been made aware of in regards to recent lending. Also, as I noted last month there are some mysterious trends in the AFG data that I am yet to explain. These trends get even stronger in this latest report and therefore make me even more curious. Firstly you will note that once again the average loan size is up across most states.

Yet the LVRs continue to fall

Which once again suggests that the loans being issued by AFG are for more expensive houses. If you look at the national average loan size and the LVR for March 2011 the data suggests that the average price of house where a loan was issued through AFG was $781,000, with the average in Queensland being $807,000. This makes little sense to me, and until I can get an answer on this I am still wary of the AFG datasets.

I do however note another interesting trend. The sudden rise in “honeymoon” loans (called Intro in the chart). That is a loan where there is a lower interest rate period at the beginning of the loan.

This may have something to do with the banks lowering their lending standards at the start of the year and/or being more active in their push to capture more clients with “sweeter” offerings.

Once again we will need to wait for the ABS data next month to see what is really happening, but this report is likely to keep the housing bulls a little fired up for the next month.

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  1. Perhaps a study needs to be done comparing the mindset of the average Australian regarding housing and the mindset of the average suicide bomber.

    There seems to be never-ending reserves of greater fools willing to hurl themselves at the cause, no matter the cost.

  2. Well it also could be that AFG are capturing a greater % of the market. I would like to know if their figures are application figures or actual settled amounts, this would indicate that some loans wouldn’t get up.
    Also what about the refinancing of loans, I know of instances that people look to redraw equity (increase their loans) and some institutions say this is a complete new loan.
    I really think we are seeing a concertied effort to show that the Aust market isn’t having problems although the gut feel on th ground is saying otherwise……

  3. News like this actually eases my mind a bit. It means there is a small chance we are in for a long term stagnation in the property market rather than a sudden crash.

    I’m still split on this. More out of hope than anything. I believe a crash is highly likely, but I’m hoping (praying) for a prolonged stagnation.

    • I on the other hand want property to tank! and tank hard!!!!!

      The only way for people to learn the lesson with property is to be burnt by it.

      Sure there will be others who feel the bite in the crash, but this will reinforce their ideals that this should not happen again in their lifetime.

      Pain, pain and suffering is what we need… its not too far removed from someone detoxing off heroin – painful, but worth it. (and no, I have never done drugs).

      • I tend to agree with you. However, if other markets (especially ones like Hong Kong) are anything to go by, no amount of pain will teach some people.

        All we can hope for, if there is a crash, is that the government of the day realises the state of the market and the problems associated with relying so heavily on overpriced housing. But I fear it is not very likely.

      • 100% agree. The price of houses are disgusting and must fall dramatically. We all know they’re too high. And to any arguments about it’ll affect the economy well of course it will. Just understand how awful the current situation is for new entrants particularly, so almost anything would be an improvement.

  4. SQM yesterday

    “There are now a total of 356,600 residential properties being advertised online. This time last year there was 241,700. That represents a 47.5% increase over 12 months.”

    See an equivalent rise in credit ?

  5. The above data is exactly what you might see if the bottom is falling out of the market. The withdrawal of first home buyers causes a lowering of the LVR, and an increase in the average size of loans. However the percentages shown in the AFG figures don’t correlate with this story. Instead they say the FHB market is steady and that the nonfhb loan segment is scaling higher and higher. Recalculating the data assuming (for example) a static FHB loan size of 250,000 and a FHB lvr or 85% gives the following slant to the data;

    Decreasing LVR in the non FHB sector (60% DOWN TO 44% FEB10 – MAR11) and increasing loan size in the non FHB sector 375k up to 411K. Loans increasing in size and decreasing in LVR, is a sign that the loan market is contracting up the market. A Very bad sign, especially as the the FHB looks pretty static. Most of this LVR/Price movement has occurred from Dec 10 onwards.

  6. I am no expert in this area but is it possible the increase in loan activity is related to the banks “mortgage war”?

    I would imagine mortgage brokers all over Australia are churning their loan book from one bank to another. It doesn’t matter whether the upfront commission is from a new loan or churned loan. Surely that would have an increase in the amount of loans being written.

    The punters are hurting out their due to rising costs and wouldn’t think twice about reducing the cost of their mortgage repayments.

  7. This is telling they want to focus on January and February figures, and not last years figures.

    It’s the erason we created ‘seasonally adjusted’ figures in the first place, except when we don’t want to use seasonally adjusted figures I suppose.

  8. I don’t see a bounce there. Certainly not outside of NSW.

    Just as you DE are focussed on QLD, my attention is on WA. Using 12 month rolling totals for the volume of AFG mortgages and the total value, WA just keeps putting in new lows. Now well below the pre-FHOG-Boost bottom. Looking at ABS data, the current 12-month mortgage volume total is the lowest since September 1999! WA is very much a case of anti-gravity prices in the face of collapsed volumes.

    In terms of skew between ABS and AFG, the main thing I note is that the AFG data shows a turnaround in the volume of FHB mortgages in recent months (for WA and nationally). ABS continues to show a cliff dive. I think the disparity may be down to more FHBs having to turn to brokers to get finance. ie. AFG have increased their share of FHBs.

  9. James C you are correct. This is bubble-death at its finest. Textbook even.

    those who can offload are offloading to greater fools. Those greatest fools seem to be able to borrow up big. FHB activity is non existent therefore what we are seeing here folks are investors swapping properties for ever increasing amounts to attempt to keep the market alive.

    it will work for a while, there’s a lot of debt to flush through the housing marker.