Refinancing boom

ABS Housing Finance Commitments is out for August and there’s a big move on. Here’s the state by state chart for total value of new loans:

As we’ve noted many times, housing finance moves in lock step with price rises so surely prices are about to rocket in Sydney and Melbourne! Well…no. And here’s why:

Note the two green lines and the blue line. The boom is exclusively in refinancing. Lending was virtually flat for purchase of existing dwellings. Here are some more charts. Total lending:

Lending by category:

Total and ex-refinancing total:

O/O and investor split:

First home owners firmly on strike:

With a big flattening in average first home buyer loan amounts:

This data is consistent with ongoing price falls at much the same pace we’ve seen to date.

The population is madly refinancing, bank competition looks healthy (at this juncture) and debt-aversion appears entrenched.

Houses and Holes
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  1. “Housing steadies: home loans rise again

    The housing sector is stabilising as talk of an interest rate rise wanes and Australians are encouraged to borrow more, economists say.”

    That’s how The Age is reporting it. I come to MB for extra details and insight. It’s a shame I need to come here for honest reporting.

    As shown here, the rise is not in home loans but refinancing. People are not borrowing more! Who are these economists that don’t look at the details?

    • economists say
      As it turns out, one of the two “economists” quoted is Bullhawkian Mad Adam – Enough said.

    • Why is it a shame? Screw them.
      It’s 2011 and there are many specialist sources of info at our fingertips. People should know better than just pick a popular paper or TV show and hope for the best.

  2. I’d love to see a survey on borrowers refinancing ie why? Most banks will match rates if a borrower is going to take their business elsewhere. You simply have to ask. Usually much cheaper that way

    However, if the refinance involves cash extraction then the existing lender has to rewrite the loan as if it was new, opening up competition. Are cash out refnances driving the upsurge or is it just cunning brokers getting fees for unecessary refinancing?

    • Most Banks’ Loan manager doesn’t like to refinance existing loan as they don’t get the incentive to do so as they won’t be able to claim the full refinanced amount. Generally the additional cash out is on a very small amount due to already max out borrowing.

  3. good pick up with the refinancing boom H&H.

    Adam Carr on the news wires reckons “home lending is

    look at that spike in FHB in 09 though. cant help but feel sorry for those poor and stupid kids. what sort of governement would sacrifice their young in order to get one last kick out of the property ponzi?

    • AMEN to that.
      Good to see the First Home Buyers largely not poking their necks into the baited trap now. Prices should not have to go THIS HIGH before first home buyers go on strike; they should have done this when median multiples passed 4, not when they passed 8. Someone should have organised a movement.

    • One great question GB. It is quite a cruel and selfish Government that only cares about winning elections.

      Unfortunately, the number of loans is only at about the level of the GFC bottom and increasing. I really hope it goes higher soon. I’m hoping prices are significantly lower in 4-5 years….

  4. The headline in the property section of today’s Australian was that Sydney, and Perth house prices are to rise by 20 per cent over the next 3 years.

    So suddenly everything is OK according to these guys, and its buy buy buy. Boom Times are hear again.

    This seems crazy, i am going mad with trying to understand what is going on. What should i be looking at?

  5. What you are looking at in image 3 ‘total ex refinance’ is the US Case Shiller that was saved in 2008 and is now on the way down again

  6. Hi

    Please excuse my ignorance. In the spirit of this site, I am just trying to understand the table included and am probably reading it completely upside down or something.

    What are the definitions of Latest, Previous, and Revision.


    • At a guess:

      Latest = current data (say, this month)
      Previous = previous release (say, last month)
      Revision = change to previous release, or revised value of the previous release

    • So in value, refinancing dropped from 5.1 or 5.0 to 4.2, and in volume 3.2 or 2.5 down to 1.7.

      The value of the purchase of new dwellings increased from .2 or 0 to 5.0.

      It looks like a case of refinancing dropping a bit less than overall purchases. There seem to be some wild variations in the numbers particularly the total value figures.

  7. “I’d love to see a survey on borrowers refinancing ie why?”

    Maybe a lot of people figure that the reason that houses aren’t selling much is that the house and contents aren’t flashy enough to attract buyers these days – so they need to spend buckets of money sprucing it up and then surely they will sell for a nice fat profit?
    Hey, it’s a guess.

    • Or a whole heap of people that fixed their loans 3 years ago when it looked like rates were going up have fixed rates coming up for renewal about now.

      I know I was one of them, and have just refinanced on a much better rate with my same lender.

    • You’ve nailed the psychology, except it doesn’t match with department store sales.

      Possibly people going to fixed-rate mortgages, but the other thing that has changed (decreased) dramatically is personal debt, so my guess is a lot of it is debt consolidation.

      • Wasn’t there a solid jump in sales of household goods recently, even though department stores and clothing were down? (too slack to check for myself at the moment)

  8. Your First Home Owners chart disguises the true extent of the slump in FHB numbers.

    Aug 11: 8,097
    May 09: 19,043 (FHOB peak)
    Jun 08: 8,805 (GFC low point)
    5 yr Avg: 10,798

    Cherry picked I know, but with FHB demand pulled forward into 2008/9 by the FHOB there’s a huge shortfall in the amount on new money flowing into the Australian property markets. And without new money existing market participants are mostly playing pass the parcel, less transaction fees.

    Demand is well below where it needs to be for a “healthy” market. This small uptick is nowhere near enough, especially with the Spring selling season to follow. Look for sales listings to keep rising, putting further downward pressure on property prices.

    • Given basic house and land packages are up over the $400k mark now, they are out of reach to the average FHB.

      In 2008, the same packages were $280k.

      Enough said.

  9. Am I reading this correctly?:

    If total commitments increase, but this is all done via refinancing, then doesn’t this equate to borrowers refinancing with a higher loan amount i.e. extracting built up equity and therefore reducing the amount of equity they have in their houses?

    So even though the increase in commitments is in refinancing, the end result is reduced equity for the borrowers?

  10. Hi Guys, well lending is on the uptick here I notice more property purchases than anytime in the previous six months. I have done two applications this week. Refinancing still strong. Lot’s of sold signs in the local area as well. You also have to understand 60% of bank lending in Qld is through the broker network. They are driving the refinance boom to keep their business alive. The banks are trying desperately to stop them from leaving and it is the front line staff having to do most of the work. The banks had the oppurtunity to ditch brokers altogether in 2008/2009 but they did not do it. I have a feeling the interest rates on hold is beginning to have an affect on the market once again. However, let’s see the next three months to see if it holds.

  11. Oh PS: For those with equity in their properties most of the extra taken is to payour credit cards and personal loan debt. Very little taken for deposits on new investment properties or new cars etc.

  12. ceteris paribus

    Classy analysis of the make-up of credit improvement, H and H.

    I was initially fooled by the headline figure.

  13. If it keeps going like this for a few more months, it will get quite ugly for some of the capitals… especially when combined with the recent drops in the ASX.

  14. is it not also possible that people are refinancing in order to reduce the outgoings on their debt repayments?

    Eg, borrowed $500,000 5 years ago on variable rate, paid off $50,000 of the principle, so take a new loan out for $450,000, thus reducing the outgoings by a few hundred a month (but extending the lifetime of your total debt)

    Do people do that sort of thing? Are banks happy to do this? I imagine they’d do anything for new business at this point

  15. Off the top of my head there’s a few reasons why you’d refi:

    1) coming out off a fixed rate loan and getting the best deal you can find

    2) consolidating loans

    3) refi existing home to renovate and try and maximum market price when selling

    4) refi existing home to finance a new purchase (though this would show up in new loans stats as well, so not much of this would be going on).

    5) refi existing home to ‘lock in’ current equity, either for consumption (ie new household goods), loan restructuring (ie changing properties used as security) or to have a ‘rainy day’ fund sitting there (its nice to already have an offset account sitting there undrawn just in case).

    Not much of that is bullish without also seeing corresponding rises in loans for purchases, but it also jives with some of the other data (ie rise in household goods consumption being linked with refi’s).