Sydney investors drive housing finance

ABS Housing Finance for Spetember is out and shows some recovery in the headline numbers:

SEPTEMBER KEY POINTS
VALUE OF DWELLING COMMITMENTS
September 2011 compared with August 2011:

The trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.9%. Investment housing commitments rose 1.0% and owner occupied housing commitments rose 0.8% driven by refinancing across institutions.

In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions rose 1.0%.

NUMBER OF DWELLING COMMITMENTS
September 2011 compared with August 2011:

In trend terms, the number of commitments for owner occupied housing finance rose 1.2%.

In trend terms, the number of commitments for the purchase of established dwellings rose 1.3%, the number of commitments for the purchase of new dwellings rose 1.2% and the number of commitments for the construction of dwellings rose 0.1%.

In seasonally adjusted terms, the number of commitments for owner occupied housing finance rose 2.2%.

In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 16.4% in September 2011 from 15.4% in August 2011.

Here are the charts. First, the national total value of loans, which shows an insipid recovery:

With much the same obvious in the number of loans:

But when we break things down state by state, we find it’s all about Sydney. Firstly in terms of value of loans:

And in terms of the number of loans:

And finally, we come to buyer type where owner occupier issuance actually fell but investors offset the decline:

In short, I would characterise this report as still weak with a very narrow segment of the national market – Sydney investors – dipping their toes in the water with everyone else standing clear. Owner occupiers remain focussed intently on refinancing. Perhaps everyone has been reading the Unconventional Economist.

Comments

  1. There is a lot of debt consolidation happening at the moment.

    People are tapping their home equity, but this time the borrowed money is being used to clear short term high interest rate debt, mainly credit cards, which many would argue can become long term debts.

    That is my anecdotal contribution – it will be interesting to see if it matches the credit card debt trend.

    The fixed rates at around 5.95% to 6.39% are quite tempting, so there is quite a bit of refinancing that could have been more easily accomplished by simply switching with the present lender, but either way the net result is the same.

    It is the trend in new buyers that will be the important trend. The AFG numbers actually went down slightly in October, although still higher than Oct 2010 which also trended downwards from the September figures.

    http://www.brisbanebusinessfinance.com/images/FHB_Graph.pdf

    • Peter, in your experience do people who refinance tend to keep their repayments the same and increase the mortgage term or increase their repayments and keep the mortgage term the same?

      • Generally the underlying reason for the refinance is the realisation that they have added too much ad hoc debt. After they buy the house some then get 4 credit cards and two car loans, and it weighs them down. Used cars don’t sell unless you give them away, and credit card spending is mostly on crap, so they can’t sell that to cash up.

        We have simply had a period where the general public had little discipline. Overspending, no savings, and too much buying “stuff” that has little or no ongoing value – trinkets and baubles if you like. It was probably due to the wealth effect, but that has disappeared now.

        If they wake up in time it’s quite easy to rectify things, but if they leave it too late, banks won’t refinance credit cards or loans that are out of order – it is a big red flag to them.

        Back to your question – most people learn from mistakes, so yes they become more disciplined. If they were struggling before, then they probably can’t continue with the same level of repayments, but they usually do repay at a higher level. I love ex-bankrupts who have learned from their experience, they really become disciplined.

        (You know that your life has become sad when you salivate over a nice balance sheet and savings pattern, but that’s how it is)

        Some of course never learn, but what can you do. They don’t have “FAILURE” tatoooed on their forehead when they first apply for a loan, that only becomes obvious later.

        As a general rule, most people are smarter than we think, and they do work it out sooner or later – so I’m optimistic.

        Sorry that probably all seems a bit vague.

  2. Of course the MSM report the jump in loan numbers, and might even mention the large refinancing component of that “recovery”.

    Just made a chart of the 12 month average Owner Occupier loan no.s from Jan 2000 until now. Really highlights the current prolonged downturn in demand! Still way below what would be needed to push prices back up at a national level.

  3. Huh, I was about to say that’s due to the stamp duty exemption expiring for First Home Owners on Dec 31, but investors? Weird.

    • I think that it may be that we have inferred that because NSW was strong and investors were stronger that it is NSW investors. However I think that may not necessarily be the case. FHBs jumped in NSW, so it may be that investors were stronger in other states.

      HnH, please tell me if I’m misinterpreting

  4. It is incredible what greed-crazed investors can do.

    Why is anyone surprised that first home buyers have gone away? The market HAS to reach a point one day, when prices are simply “TOO HIGH” for MOST first home buyers to be able to buy at all, regardless of how much boosting the bank manager, the RE agent, and their stupid parents do.

    I suggest the housing market in Sydney reached that point a year or 2 ago.

      • Does it actually matter in an economic sense if the majority of first home buyers are forced out. Could we not end up with a system where more property is in the hands of fewer wealthy investors and more people rent for life?

        • It’s been that way for a long time already. The only way you can get into property these days is to have already got some access to it – be that through a guarantee from parents who own property, an inheritance from someone who owned property, or using equity in purchases past as security for your next loan. The notion of “saving” for your first home deposit is well and truly antiquated (and will be useful only for its nostalgic value in marketing campaigns of the not-too-distant future…)

          • “The notion of “saving” for your first home deposit is well and truly antiquated (and will be useful only for its nostalgic value in marketing campaigns of the not-too-distant future…)”

            I disagree. Eventually the market will return to a level where people can realistically afford to save for a substantial deposit. How that happens (relatively short crash or longer slow deflation) is the unknown for me.

        • “Could we not end up with a system where more property is in the hands of fewer wealthy investors and more people rent for life?”

          I don’t think such a situation is sustainable when prices are so high that rents don’t come close to covering interest payments.

          If you’re losing money daily in the hope of longer-term capital gains, eventually you lose the ability to continue borrowing more as you can’t cover the ongoing repayments.

          It might work in the short-term, but not in the long-term.

          • In the system postulated, where property is in the hands of fewer wealthy investors, there would be little or no interest payments. The investors would be satisfied as long as the net rental yield exceeded the deposit rate. The deposit rate in much of the developed world is currently of the order of 1%. How long before Australia joins them?
            The current ING standard variable savings deposit rate in the UK is 0.5% gross. Don’t be fooled by the advertised headline rates which include temporary rates for new customers and/or loyalty bonuses.
            The current savings deposit rate in the US with ING Direct is 0.9%.

          • The deposit rate in much of the developed world is currently of the order of 1%. How long before Australia joins them?
            .
            A bit of selective reasoning there.. To complete the picture, how about our house prices crashing by an equivalent % as much of the developed world BEFORE you see deposit rates in the order of 1% in Australia.
            .
            Are you suggesting that the RBA/Banks will reduce deposit rates to 1% even when house prices remain at the current level?? Wishful thinking indeed 🙂

          • “Rents have never covered interest payments in recent decades if you assume a large LVR. Not even close. Yet the situation has been sustained.”

            You’re ignoring the key point that I was replying to. The past you refer to includes first home buyers and therefor doesn’t apply to the postulated futre of:

            “Does it actually matter in an economic sense if the majority of first home buyers are forced out. Could we not end up with a system where more property is in the hands of fewer wealthy investors and more people rent for life?”

          • “The deposit rate in much of the developed world is currently of the order of 1%. How long before Australia joins them?”

            And unsurprisingly no-one is speculating on houses in these countries because they are experiencing asset price deflation.

            How long before Australia joins them indeed. I think we’ll be there soon but it won’t be the property investors’ utopia you seem to imagine.

  5. umm dadofsam i believe negative is the reason that yields dont cover costs. am i missing something?

  6. My theory – Sydney internationals are probably cashing in their OZ $$$$ investments. Local oz resident investors thinking they are picking up bargains at 2% off !!

  7. DadofSam said above:

    “….Rents have never covered interest payments in recent decades if you assume a large LVR. Not even close. Yet the situation has been sustained…..”

    The situation has been “sustained”. Yes, what famous investor was it that said, regarding “shorting” the market: “always remember, the market can stay irrational longer than you can stay solvent”…..?

    In the case of property bubbles, it seems the market can stay irrational until a significant proportion of the greed-crazed actors ALSO become insolvent and run out of avenues for further loan finance. The longer you pump the bubble, the bigger the mess eventually.