AFG’s July data

Just so we are clear about this, I am no longer sure if I trust the AFG data after the data revisions I reported on in early July. But in crazy times such as these it is important that everyone gets all the data and makes the decisions for themselves. So for the sake of full disclosure here is AFG’s release for August.

Australia’s mortgage sales declined by 3.7% in July, as consumers remain fearful about the threat of further rate hikes, taxes and global economic worries, according to AFG, Australia’s largest mortgage broker. The AFG Mortgage Index shows that month on month mortgage sales fell most in Victoria, by 7.4%, with declines also recorded in New South Wales (5.9%), Western Australia (5.0%) and Queensland (0.5%). Only South Australia recorded an increase, but off a much lower base, of 13.7%.

The most active part of the mortgage market remains refinancing, with two out of every five new mortgages (39.1%) arranged to refinance an existing home loan. By contrast, the proportion of owner occupiers arranging mortgages to move or upgrade their homes was just 11.7% of all mortgage sales.

Mark Hewitt, General Manager of Sales and Operations says: ‘These figures confirm a much more worrying trend: that most Australians are still fearful about their financial future. Ever since the interest rate rise last November, home buyers have gone into their shells. Western Australia, supposedly the prime beneficiary of a resources boom has the most depressed property market of all. Domestic financial news is dominated by talk of rate rises and the carbon tax. Gloomy international financial news has seen stock markets slump. We’re all looking for strong economic leadership to provide the market with some much needed confidence.’

In Western Australia, total mortgage sales for the first 6 months of 2011 were 3% lower than for the last 6 of 2010, investor interest lags behind the national average (30.7% compared to 35.6%), and the average loan size for July fell to $371k – exactly the same as the average loan processed 4 years ago in July 2007.

Major banks continue to dominate the lender market, with 81.7% of all new home loans arranged by the four major banks, including the subsidiary brands they own.

Fixed rate mortgages comprised 7.9% of all loans arranged in July, compared to 75.0% of loans which were basic or standard variable. Introductory loans fell to 8.5%, the lowest such figure all year, in keeping with the overall decline in first home buyer numbers.

All seems to fit with the other data we are seeing. Loans volumes are slowly falling while re-financing is the major component of the market. I do note a stabilisation of the Queensland numbers for the month which suggests there may have actually been a bit of an uptick caused by the changes in stamp duty legislation. If that is the case then I would expect to see a slump in next month’s numbers.

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  1. Spending on lifestyle or actually getting a cheaper rate over the life of the loan. Remember that a lot of these refinancing loans where the old loans with substaintial break costs, but AFG’s LVR figures indicate that there is still plenty of room left before negative equity takes over.

    bigger issue is banks getting their share of funding from international lenders. You can have 95% of your money tide up in long term low yielding bonds and then play with the 5% in greece etc, and make more then lending it to Aust banks (risking 5% rather then exchange rates and x%)

  2. The latest figures are well within the movement ranges over the last year and there doesn’t appear to be a trend establishing, so I’m not sure how we conclude that loan volumes are falling.

    Indeed, if you compare July ’11 figures w/ July ’10 they’re better all-round: more mortgages, higher avg. value, etc.

    The only trend shown in that data is the return of the FHB.

    • Ah OK, looked back through their previous reports and there’s a slump from Dec ’10 until May ’11, so the question becomes whether the relative better YoY performance of Jun & Jul is an aberration, or sign of a change.

    • After running it through some basic seasonal adjustments (month, number of working days in month), there is a clear downward trend in these numbers, however last winter was particularly bad as well, so it looks like the trend might have levelled-off. It would be a surprise if the numbers got any worse!

      I’m a bit confused about the breakdown by refinancing though. If you add up investors, FHB and refinancing, you get 88%. So what’s the other 12%? Does it mean “established home-owners upgrading”? 12% seems a bit low to me. This number has also been dropping like a stone, from about 20% (around 1500 – 1800 p.m.) from 2007 to 2008 to currently around 650 per month. So are people not upgrading at the moment? How much further can this trend go?

      Does anyone know?

      • Dumb_Non_Economist

        Is this what you are looking for? “By contrast, the proportion of owner occupiers arranging mortgages to move or upgrade their homes was just 11.7% of all mortgage sales”.

        2nd para, last sentence of the main body.