AFG sees a bounce

As my long term readers would know I have followed AFG mortgage data for quite some time. I am aware that it is not actual mortgage issuance, is susceptible to variations in AFG’s market share, seems to have a disproportionate spread across the states which doesn’t match their size, and also has a bizarre trend in ever-falling LVRs that I just can’t work out ( it continues this month ). But having said all of that, they are still the only available leading indicator of what is happening in the mortgage market and I have found previously that their data trends match that of the official ABS data that is released many weeks later.

Their latest report is out, and it looks like one for the bulls.

SURPRISE UPLIFT FOR MORTGAGES AS INVESTORS SWOOP: MAY FIGURES

Mortgage sales increased by 18.8% in May as investors took advantage of softer market conditions according to AFG, Australia’s largest mortgage broker. While May is traditionally a strong month for sales before the quieter winter period, AFG Mortgage Index figures showed surprising strength, after a natural disaster-hit first quarter, and subdued figures for April. Total mortgage volume for May was $2,517 million – only 1.7% lower than the figure recorded for May last year ($2,561 million).

AFG processes 10% of all Australian mortgages (Source: ABS and AFG data) and its trend data is usually strongly indicative of ABS figures published six weeks later.

Victoria and New South Wales saw the biggest month on month upswings in mortgage volumes, increasing by 27.2% and 23.3% respectively. Both states also had the highest proportion of investment loans with 38.8% of loans in Victoria and 37.9% of those in New South Wales, processed for investors. May also saw a surprise increase of investment loans in Queensland, up to 36.5% – its highest such figure for well over a year.

Mark Hewitt, General Manager of Sales and Operations says: ‘Property investment has remained at consistent levels throughout the ups and downs of the property cycle, but strengthened significantly in May. It is certainly a buyer’s market right now, and investors looking at rising yields are probably better insulated from the impact of rising interest rates than other types of buyers.’

I am not too sure why AFG have decided to concentrate on the “investors”, a quick look at the data tells you that the change from previous months in percentage terms isn’t particularly large. The rises actually seem to be fairly broad-based and significant, but there are definitely some differences between the states. Below are some charts of volumes and total mortgage values processed by AFG by state over the last 2 years.

New South Wales seems to have recovered:

As has Victoria:

SA seems to be reaching for the moon:

WA seems to have improved but remains in a downward trend:

But once again Qld do not seem interested in joining in:

The data for Victoria, New South Wales and South Australia certainly seems positive for the housing market but I am also aware that it doesn’t seem to have been reflected in some other data, such as auction clearance rates. Our resident loans officer “Stormboy” has already informed us that his loan issuing organisation noticed this uplift in May but it has now fallen off again, but the uplift was mostly in re-financing.

A dead cat bounce? A bull trap? the last stampede of the greatest fools ? Or something more sustained? Have I been too bearish on the future demand for credit towards housing?

We will have to wait for the following months data from AFG and the ABS to find out.

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Comments

  1. If house prices have been falling then it isn’t reflected in the AFG average mortgage size which seems to have steadily increased. The RBA itself shows definate falls..http://www.rba.gov.au/chart-pack/household-sector.html…but the mortgages arranged by AFG somehow keep growing in size. Strange.

    As for wether this is a sustained pick-up or not, all I can say is that we’ve seen similar bounces more than once since housing went sour a year ago but they’ve all fizzled out. But as always, it’s wait-and-see.

    • Hi Lefty,

      As I said above I am aware of the “strangeness” of their data and have consider a number of times not to bother with it any further. Their LVR data makes no sense at all, and I am aware that some of the other data doesn’t fit what is reported elsewhere. The big upticks in all states certainly didn’t change the clearance rates at auctions for instance.

      However, their market assessments tend to be good leading indicators of what is happening “out there in the market”.

      As you say. we will have to “wait-and-see”

      • No, it’s good to keep analysing it. The AFG data makes big headlines with every release, so it’s good to have someone breaking it down, or at least trying to. Otherwise, the punters only read the MSM headline and assume that’s what’s happening.

  2. Could AFG’s data reflect strong interbank refinancing. Many banks are doing very good rate reduction at the moment. Westpac has up to 1% discount for loans over $500,000 at the moment for the life of the loan and they pay up to $700 of the switch costs. This makes sense if many are struggling on there repayments go to a broker find a cheap rate and switch. I believe the US banks are finding that a big chunk of their lending is refinancing hence the still falling prices.

  3. As stormboy notes the increase may be predominately re financding. This would allow 2 aspects of the data, the low LVR, and the increase in loan origination. The low lvr’s if you have owned you house for 10 years and you want to borrow another $50,000 to renovate etc then the LVR would be low. The refinancing would indicate why the real estate agents are still quite.

    I personally know of one person that refinanced their loan to allow a large redraw facility as they intend to start a business in a year or so and wanted to be sure that they had capacity if property prices had fallen.

    • The AFG report doesn’t seem to show any significant change in the re-finance percentage. However this may well be simply be an issue of categorisation of their data.

      I have heard from another financial institution this morning, who I cannot name, but their views are reflective of stormboy’s experience.

      So maybe all of this uptick is re-financing and that is why we aren’t seeing any great moves in things like auction rates. The numbers may just be a reflection of some moving of the deck chairs, while the banks try and steal each others customers.

      Time will tell.

  4. LVR falling.
    Is that a result of lower prices?
    (I’m thinking that reduction in sales over the past year has allowed the buyers to accumulate a large deposit)

    • AlanR

      Probably the banks scrambling to try and make more money on a dead market. They seem to be pulling out everything to keep the Ponzi going. Maybe just Maybe now its time for them to pay their dues. They have nothing to fear the govt will bail them out if they fail.

  5. In a word: Easter.

    These figures haven’t been seasonally adjusted, and when you take that into account, there is barely any change from previous months. Here’s my bold prediction: AFG mortgage sales will fall for the next two months.

    • Nathan,

      Bill Evans from Westpac was asked about these figures on the ABC midday news today. He said exactly the same thing – if you take out the “Easter/Anzac Day” effect, the figures really haven’t changed all that much.

  6. For South Australia, the AFG index is just catching up the overall market.

    The AFG index has been running at -55% from July 07 (“the peak”), while the ABS numbers have been running at -40%. AFG has lost a big chunk of the market during and after the GFC and they now seem to be filling that gap, at least in recent months.

  7. What this tells me is that a prologued stagnation is a little more likely than a large scale crash. It could be the psychology of the Australian market, but it seems that people have seen lower prices and mistakenly thought ‘what a bargain’.

    Who knows what this is. I’m hoping for a stagnation because a severe recession would be very difficult to handle right now.

    • >What this tells me is that a prologued stagnation is a little more likely than a large scale crash. It could be the psychology of the Australian market, but it seems that people have seen lower prices and mistakenly thought ‘what a bargain’.

      MattR I think you are correct here. At my work I have seen a number of youngsters with itchy feet talking about “getting in now” because the prices have fallen.

      What concerns me is that they will be suckered in by the MSM talking up the recovery as we have seen today. But if you bothered to glance at the Queensland numbers ( where I live ) you will see that the loan issuance market is in freefall.

      I really do feel sorry for the poor buggers.

  8. If you look at the data for the run up to the US crash it took over 18 mths for the numbers to even register in the MSM. It has only been 6-8 mths here in Australia with NSW and Vic being the most recent. I think we really won’t see this baby play out until early next year. The US crash was really a slow deflation of the property prices over a two year period not a drop of 20% in one quarter as I think many here are expecting. Some parts of the US have not experienced much of a drop at all, look at New York or Chicago barely any movement at all. However, Las Vegas, Los Angeles, Miami and Phoneix down as much as 50%. I think we might see this here in Australia with Sydney and Melbourne falling less than Brisbane and Perth for example. I am hoping things don’t drop dramtically as my job depends on real estate. I am keeping my eye for other oppurtunities just incase.

  9. Reduction in lvr is surely down to the reduction in first home buyers taking out mortgages

  10. uncertain data does not make the fat lady disappear, no matter what the “Jenny Craig” economists would have us think.

    Postponement is not reprieve or cancellation. Capital city and coastal tour still on, says fat lady.