Correction: AFG was not so hot

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Right…straight out I’m a dunce , and a huge apology all round. Yesterday I made a pretty serious error while transposing data from the AFG reports to the spreadsheet I use to generate my charts. In doing so I mixed February’s data for Victoria and Queensland which produced results which were … well completely incorrect.

So now let me re-issue that post with the correct data.


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The latest AFG mortgage index report was released yesterday and on face value it looks like we have a bit of a recovery under way.

As MacroBusiness readers may remember, I use the AFG lending volumes as a leading indicator of the direction of the home lending market, as they appear to be a relatively good leading indicator for the official ABS data in the 5609 and 5671 datasets.

For those who don’t know, the ABS 5609 and 5671 datasets contain owner occupier and investor housing finance data. The trends in these datasets appear to have a good correlation with the movement in house prices. So basically by using the AFG volume data you get a fairly reliable 1-2 month leading indicator on house price movements across Australia. The correlation to house prices isn’t perfect because you obviously have to take account of the supply side, but you can see from the charts, the data is worth taking notice of.

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To the report:

HIGHEST FEBRUARY MORTGAGE SALES ON RECORD AS FIXED RATE LOANS PEAK

Average new home loan reaches $400k for first time ever

AFG, Australia’s largest mortgage broker, had its highest February sales on record, processing $2.8 billion of loans. This compares to $2.0 bn in February 2011 and $2.2 bn in February 2010. In a month when lenders decoupled from the RBA cash rate, announcing out of cycle rate rises, more new borrowers than ever before ? 23.2% – chose Fixed rate loans. This surpasses the previous high of 20.4% for fixed rate loans recorded in October last year, and compares to a figure of just 6.6% in February 2011.AFG Mortgage Index also shows that, for the first time ever, the average new home loan in Australia reached $400k – up from $385k in January and $382k in February 2011. Across the nation, NSW had the highest average new home loan – $471k, followed by WA – $421k and VIC – $409k, which has only recently broken through the $400k barrier.

Mark Hewitt, General Manager of Sales and Operations says: ‘The dynamics of the home loan market are changing in a number of ways. The very good news is that the past six months has seen a steady stream of First Home Buyers return, which is vital to the future of property markets. As well as this, increasing competition among major and non major lenders, and the decoupling of lender rate announcements from the RBA is making the mortgage market a more complex place. This is an environment in which brokers thrive, because borrowers know they really need to shop around for the best deal, and increasingly rely on us to do so. Concern about the future of rates is also the reason why record numbers of borrowers are choosing to fix rates.’

Major lenders saw their market share drop somewhat from 79.0% in January to 76.1% in February. Most of this change was because of an increasing trend among First Home Buyers to opt for non-major lenders ? up from 27.4% in January to 29.1% in February.

So as the report states, it is possible that the large jump in broker activity is due to the current lending environment and the dissatisfaction with the big lenders. But even if that is the case, it is very hard to ignore the bullishness of this data and the indication that the housing market is turning upwards, even if temporarily.

Firstly at a national level we have a good spike:

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In NSW, February did not show too much pull back following the end of FHB incentives. This makes sense. FHBs buy from others who then move up so activity can linger for a while:

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In Victoria we have the usual February bounce, but its the not the trend busting spike a had mistakenly charted yesterday:

In WA, the trend higher is intact from low levels:

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In QLD we have a little uptrend starting from low levels too, but given the subdued start to last year due to natural disasters it is hard to make comparisons and there the market is still very subdued:

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So it looks like we have some continuing strength in NSW, a little pop in WA and overall a bit of an uptrend forming at a national level on those strengths. This is a weaker mix of results than I had yesterday given one of the two major markets is much more subdued than I recorded yesterday. It remains brave to call a bottom on this mix of data, not least because AFG itself says there’s been a strong cycling into broker networks, potentially distorting the outcome. Sorry for the stuff up.

Mortgage Index March12 National 3