NSW kills housing finance recovery

By Leith van Onselen

The Australian Bureau of Statistics (ABS) released the February Housing Finance data this morning, which registered large falls on the back of the hangover caused by the 31 December expiry of New South Wales (NSW) first home buyer (FHB) stamp duty concessions.

As I noted previously, much of the recent bounce in housing finance commitments was due to the NSW Government’s announcement in September 2011 that it would end the generous stamp duty concessions provided on pre-existing dwellings on 31 December 2011. Predictably, this announcement led to a surge of buying from NSW FHBs in the three months to December, which also acted to push-up the national figures. However, with the NSW stamp duty concession now over, first home buyer demand fell sharply in both January and February, reducing overall finance commitments in the process.

According to the ABS, in seasonally adjusted terms, the number of commitments for owner occupied housing finance fell by -2.5% in the month of February, with the total value of dwelling finance commitments excluding alterations falling by -1.3%.

While the fall in finance commitments will be no shock to MacroBusiness readers, it appears to have shocked Commsec’s analysts, who had expected the number of loans to rise by 5% in the month.

Below are charts summarising the situation at the national level. The first chart shows a breakdown of the number of housing finance commitments by component. You can see that much of the increase in housing finance commitments over the past year has been driven by refinancings:

Nevertheless, until December 2011, the number of housing finance commitments (excluding refinancings) had trended upwards for 10 months. However, over the past two months, the number of finance commitments (excluding refinancings) has fallen by -6.6% and remains -16% below the 5-year moving average:

Much of the upswing in housing finance commitments to December 2011 was driven by increased activity from FHBs – a cohort that had increased their share of total owner occupied housing finance commitments from 16% in February 2011 to 21% in December 2011. However, over the past two months, the FHB share has fallen back to 17%, which has helped to drive overall finance commitments lower:

As noted above, the fall in the share of FHBs has been driven primarily by a slump in demand from NSW FHBs, although falls in FHB share in Western Australia (20% down from 22% in January) and Queensland (19% down from 21% in February) also contributed to the overall decline:

At the overall state level, NSW experienced the heaviest falls in finance commitments (excluding refinancings) on the back of the sharp drop in FHB commitments; although declines were widespread across the mainland (Note: data is not seasonally adjusted):

As you can see, the overwhelming majority of last year’s upwards movement in finance commitments and the latest falls have been driven by NSW.

Unfortunately, the ABS only provides the value of investor finance commitments. This series rose by 4% in February, partly offsetting January’s 7% fall:

As I noted in prior months, the overall upswing in housing finance commitments to December 2011 was driven, to a large extent, by increased NSW FHB activity as buyers rushed to beat the 31 December 2011 deadline for the removal of stamp duty concessions.

Now that this deadline has passed, we are experiencing a sharp pull-back from NSW FHBs, which is acting to reduce overall finance commitments. To me, the data confirms the underlying weakness of the Australian housing market.

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Unconventional Economist
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  1. Wouldn’t it be logical to expect some drag forward of demand and then see a commensurate fall in that sector.

    Why do you see that as “killing” a recovery, and why do you call it a recovery in the first place when it is just a cycle.

    This effect was as predictable as the rising of the sun.

    • Yet I am the only commentator (correct me if I am wrong) that predicted this outcome many months ago. Also, how do you explain the market economists predicting a 5% rise in commitments this month?

      Besides, I thought you were a big believer in the AFG data? Turns out it bears little resemblence to the official ABS stats.

      • According to the Westpac weekly, the market forecast was -3.4%, with a range of -6.0% to +1.0% (they had it at -1.5%).

        Who predicted a 5% rise in commitments?

        One month of divergence doesn’t undo a historically strong relationship. I don’t see anyone at MB disowning the Roy Morgan unemployment numbers even after many months of divergence from official ABS stats.

        • “One month of divergence doesn’t undo a historically strong relationship.”

          Actually, it is two months of divergence. Also, what do you mean by “a historically strong relationship”?

          “I don’t see anyone at MB disowning the Roy Morgan unemployment numbers even after many months of divergence from official ABS stats.”

          I’ll wait for tomorrow’s ABS labour force release before making any judgements. So should you.

      • I do recall you predicting this some time ago, but I thought that it was too obvious to be concerned about. I don’t know if others had similar predictions, I haven’t been reading all of the MSM, but if you indeed were the only one then kudos for that.

        Saying that the AFG data bears little resemblance to the ABS stats is clearly incorrect, and I think that you know that.

        • Resemblance between AFG and ABS?
          I thought we were already over that.

          This is the AFG press release for February 2012:


          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…… etc. etc.

          AFG does not uniformly represent the entirety of the Australian home loan market.

        • From AFG’s February release:

          “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…

          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…”

          AFG also reported a huge increase in finance commitments in NSW in February, which completely contradicts the broader ABS data.

          So yes, I repeat my claim that AFG bears little resemblance to the official ABS housing finance data.

          • The AFG data is for finance approvals, whilst the ABS data is for finance commitments. The datasets do NOT align chronologically.

            If we don’t see the higher volumes flowing in March and April then I will accept that you are correct on this issue, but if we do see higher volumes within a reasonable margin then I expect the same from you.


          • Can you explain what the difference is between an approval and a commitment. They seem to me to be much the same given the ABS’ definition of a commitment:

            “A lending commitment is a firm offer of housing finance. It either has been, or is normally expected to be, accepted. Included are commitments to provide housing finance to employees and commitments accepted and cancelled in the same month.”

            Also, what happens if a borrower gains approval from a number of different lenders? Would these show up in AFG’s dataset multiple times?

          • Fair question. Banks don’t report all commitments to the agencies on the instant of an approval.

            Post approval activity means documentation has to be completed, sent to the borrower, signed and returned to the bank.

            Then it is checked to ensure all is OK – settlement is arranged, and really only when the loan has settled can the bank/lender truly count the deal as a 100% commitment.

            You would have to ask the banks admin to get more info and each may vary slightly – perhaps DT can find that for you, but I have noticed that the AFG data typically runs about 1.5 to 2 months ahead of the ABS results, although I haven’t done any in depth investigation.

            In addition I suspect that it suits the banks to not report until the last minute.

          • Thanks. Just another question – I am trying to understand the AFG data better – according to ANZ, housing finance from wholesale lenders increased by 40% in the six months to February. Wouldn’t this bias the AFG results upwards?

          • Sorry I missed your last point. Borrowers in this climate would almost never get approval from several lenders.

            Credit history is scored these days and recent enquiries at other lending institutions must be explained. If for example someone wanted a 95% LVR loan and had already applied with 3 or more institutions, they would be automatically declined by the mortgage insurer unless there were exceptional circumstances.

            I’m not saying that it can’t happen, but it would be rare nowadays. Also as AFG has 10% of the market, there is a 90% chance that any additional applications would be put through a different broker group or direct with a bank.

          • Quote “according to ANZ, housing finance from wholesale lenders increased by 40% in the six months to February. Wouldn’t this bias the AFG results upwards?”

            Yes it would skew the data somewhat, but by how much?

            I assume that the ANZ is talking about non-bank lenders increasing market share by 40%. At their lowest the non-banks had about 10% of the market, so that increase would account for just 4% of the total market.

            In recent times they have increased this to around 20% so it could be as much as 8% of the total market.

            If you refer to table 2 on page 2 of the AFG data at:-
            you will note that change in non bank lending has fluctuated in the low single digits, so I would need to understand exactly what the ANZ meant with that comment. Wholesale lending can mean different things – most banks are involved in wholesale lending through third party channels. Can you provide more information?

            Back to your original question – bit DE and Nathan Webb use a one month delay I believe – you can check that. I believe it is closer to 5 to 6 weeks but as we run with monthly stats that is probably the best correlation that we will get.


    • That’s my title PF. And it’s more than appropriate given the hoopla that has surrounded the “recovery” in housing finance. Moreover, I remember you crowing about how predictable AFG figures showing that a “recovery” was under way. Do you think we are goldfish?

      • I think that you will find that I used terms like “an uptick” and avoided using terms such as “housing recovery” – however please trawl back over my posts and see for yourself.

        I have never suggested that anyone here had a short memory, but on the evidence before me it may be suspect.

      • i also remember PF talking about a recovery underway just a few weeks or months ago. pulled him up on it yesterday. something about buyers taking out the low hanging fruit and once that was gone the next level of sellers would be exposed at higher prices.

        • GB – Clearly you have trouble reading posts in full and understanding them.

          Which post of mine do you need assitance with?

          • It’s always good to think about how you express yourself, before tell others that they misunderstand. And if you’re a word mincer and don’t like to be wrong, then you’re always going to be on the defensive.

          • Peter, I am still waiting for the Japanese banks you said will come here and hand out cheap and ‘safe’ 95% LVR mortgages. I was hoping Sony will throw in a free PS3 with every 95% LVR mortgage.

            Every month, you come up with a new narrative on how the house prices will start to tick up. And every month they turn out to be false.

            Anyway, it is still good to have you posting here, if not for some balance, at least for some entertainment value.

          • TP – a shubunkin is merely a type of goldfish, and in light of comments by H&H it seemed quite appropriate.

            It’s certainly not an abusive term.

            I’m staggered that MAV is constantly allowed to troll every thread but reasonable comments are deleted.

          • It was the link to the troll nest – I automatically delete anything to do with that, so don’t do it again. That goes for anyone linking or talking about it – R2M that means you too.

            Mav’s stuff gets moderated and deleted too, but he’s certainly no troll.

            And I remind everyone again, this is not an open forum. Read the comment rules to be clear.

          • Prince I didn’t provide a link to another website, I only made a reference to it as did MAV – but you didn’t delete his post.

            Sorry mate but you are not being even handed here. I get the fact that most here are died in the wool bears, but a little honesty and truth won’t kill them.

          • Link/name/whatever. And I did delete Mav’s post. End of discussion.

            I am being even handed – there’s currently 51 comments in trash at the moment – I have to moderate a lot of ill considered stuff from the permabears so I can keep both sides of this party happy. Some of it gets through – get over it, we have over 500 comments a day now, I can’t read every single one…

            If you all just stepped back from the computer from time to time and thought about what you are going to type, it would make life a bit easier on everyone.

  2. The housing ponzi emporer has no clothes, despite the NAB survey insisting that he does have a budgie smuggler on.

  3. I’m consistently shocked at how readily property virgins are prepared to throw themselves upon the sacrificial property alter for such little benefit.

    • I’ve gone from shock, to a disapproving shake of head, to what’s nearing complete apathy for these types. It’s the Greater Fool theory, and it doesn’t just occur in property.

      It’ll come to an end, and my guess is it’ll be sometime around the season final of mainstream TV’s favourite Reno-“reality” show later this year.

    • Little benefit ?

      You can put nails in the wall of your own property as you please, paint the floors purple, breed pigeons in the bathroom, own a lawn mower, collect leaf blowers. All for as low as a $400,000 mortgage and as little as 25 years of indentured servitude to a series of employers, each worse than the last, who will gradually and systematically erode your spirit and last fibre of integrity. That’s a motzah of benefit right there my friend !

      • You tried the Sydney rental market recently? That’ll erode your spirit and integrity and you don’t even get the benefit of being able to paint the walls and nail the floors down!

        • Wasted OpportunitiesMEMBER

          I always find the nail-in-wall argument funny. I have put nails in the walls of all the properties I have ever rented and I’ve never been docked any bond money. Most people tend to want to hang things in very similar locations…

          I’ve also installed other useful devices like a locks on the bathroom door and a shelf in the laundry (without asking permission). No dramas. I haven’t painted any walls or floors but I know people who have. In my experience landlords don’t really mind you making minor alterations as long as they are constructive and you pay your rent. Maybe I’ve just been lucky.

          • Depends how much of a drama your landlord makes of things. I was lucky for a couple of years to know my landlord – a couple of years I dealt with agencies, and they were militant about policing these things, even when the changes I wanted to make would improve the property…

    • It’s almost pavlovian the response to these various handouts and exemptions, depressingly so.

      If it weren’t for the surplus obsession at federal level, I think we would be seeing more handouts from them by now, and I won’t be surprised if they end up boosting the FHOG again if prices start slipping quickly enough, because it’s pretty obvious a whole new bunch of FHBs will fall for it.

      • Unfortunately Hamish, I think you are spot on. As soon as the Govt abandons the need for a surplus, all manner of ponzi-enhancing measures will be implemented to support property prices.

        • My feeling is that the surplus obsession will only disappear after it’s too late to save our housing market. Both parties have committed themselves far too strongly to a budget surplus to back down now.

  4. im also worried about the increasing number of people refinancing since mid2009.

    all the built up equity that could be used as a buffer when pricess fall, is being thrown away by people who should know better

    how much bad debt are we going to see people trapped with in the comming years ?

    • I wouldn’t worry about it but it’s definitely a phenomenon that doesn’t get much mention from the talking heads.

    • Refinancing doesn’t necessarily mean they’re adjusting their LVR – could be to get a lower rate, better package etc.

      • Really? When was the last time that you refinanced that the broker/bank didn’t try to get you to take out the maximum that it could foist on you?

      • Good point. I’d like to know the breakdown for refinances up/down.
        However I’d put money on the LVR going up, and the borrower going to Bali, buying a jetski, Territory, plasma…..(you get the picture).

        • You’re right, I wouldn’t be surprised if the refinance for a lower rate resulted in their repayments staying the “same” while the LVR goes up and the rest being equity mate.

    • chief squirrel

      I agree completely.
      I fear a lot of people are refinancing just to either keep afloat, or stay in dreamland. This is a time to be reducing mortgage exposure, not keeping it topped up… right?

      Interesting random tidbit: CBA Financial Planning banner advert has popped up above the comments. (On my browser anyway)
      That’s kinda funny.

  5. The logical conclusion I come to is that NSW property prices can only tread water while government assistance is present. As government assistance is removed, prices should fall.

    NSW was one of the few areas supporting the national price figures in late 2011. Once price declines ensue in NSW, it will be very interesting to see what effect this will have on the national house price figures.

    I’ve heard it said that foreign investors already think we have a bubble.
    If price declines become more visible in the national figures, that could have negative consequences for bank funding costs, driving the feedback loop in a downward spiral.

  6. I hate pigeons, do not like purple but own a mower and leaf blower. Plus I rent my surburban sydney paradise for only $2k per month. (I have not had a rent increase since I moved in 3 years ago) To own the same place with a $100K deposit I’d be looking down the barrel of $3,500 in minimum repayment with no money to paint the floorboards purple. Interest to the bank is dead money on asset that is going backwards. Might as well save that $1,500 and build that deposit up, whilst mortgage holders bleed equity.

  7. I’m sorry but… what a freakin’ mess. So many conflicting sources of information. How is this country EVER to build a functioning economy and decent government policies if the information flows are already so bend, morphed and twisted by the paws of interests.

    (Not even mentioning the skills and knowledge of those who are expected to provide economic advice or develop policies).

    I haven’t really commented much lately because I simply cannot trust anymore that what I’m reading today will not be followed up with a conflicting report tomorrow.

    When your information flow leaves to be desired you can pretty much give up on coming up with a decent long term approach!

    • IMHO, the information flow is deliberately distorted. In the absense of positive data, Housing vested interests are literally scraping the bottom of the barrel and there has been a concerted effort to bury the bad news..

      I have had only good things to say about RP Data so far, but Is it a coincidence that RP Data – Rismark switched their index to a daily one, with seasonally adjusted figures no longer available. Also, around the same time, they stopped publishing the total auction figures in their auction clearance rate table published in re.com.au. This figure used to give us a good indication of the number of unreported auctions.

      • Deliberate obfuscation. The data may be masked, but the downturn will roll-on in the real world.

      • Would you expect anything else from these vested interest scum? I wouldnt p*** on them if they were on fire.

        I couldnt care less about people getting burnt in the crash now, to bad so sad. If you were too stupid to believe in what these used car salesmen told you then you deserve the life of debt-servitude.

        Burn baby burn!

    • That’s life, dude.

      The more I get into this kind of thing, the more I understand the problems with any kind of statistical analysis.

      You’re trying to come up with best estimates based on limited information. It takes time to get the full population, so a quick sample is often needed – that’s what AFG provides.

      Social science studies are much worse than this! Correlations are often very small, and hardly make an impact, but they’re reported in the media as being monumental.

      Forecasting is even harder; it’s an inexact art, and if it were any other way then it wouldn’t be forecasting, it would be calculating.

      • I know, but you would expect that at least ABS is keen to provide useful numbers. However, any organisation that defines unemployment as working less than an hour a week and also actively looking for a job is disqualified in my book.

        Government over here doesn’t seem to be interested in what is really going on out there. Plausible deniability is preferred over knowing and being able to use it to come up with a sound answer.

        Did you guys see what the Treasurer in SA said last week…? Apparently we do not have a recession here because how can you have a recession when unemployment is only 5%!?

        Sorry, I’m just really frustrated with the incompetency I’m seeing around me. All I see is a dead end… no talk about reform, no credible actions, not even simple recognition of the fact that people are struggling.

        • +100 .. Stats are bent out of shape to suit the bureaucrats/political masters of the day.

          For example, Never mind the “work 1 hour and you are employed” trick, 5% unemployment is considered “Full employment”. Is there any empirical evidence to back this up or did some bureaucrat/mainstream economist pull a 5% number arbitrarily out of thin air?

          • Mav, there is a great deal of academic literature discussing this very question. It’s a somewhat grey area – while the number is not plucked out of thin air, neither is there absolute empirical evidence for it – indeed, it would be difficult to provide evidence that would satisfy everybody. But there is certainly some evidence that this is around the figure that unemployment needs to be to avoid inflationary pressures, given the other constraints in our system (eg minimum wages). The figure could be very different in different economic systems.

        • “I know, but you would expect that at least ABS is keen to provide useful numbers. However, any organisation that defines unemployment as working less than an hour a week and also actively looking for a job is disqualified in my book.”

          I’m afraid you’re revealing your ignorance there, AnonNL. The definition used by the ABS is the standard international definition adopted by the ILO in 1982. In recognition of its weaknesses, the ABS has also adopted other statistics to measure under-employment. Try reading this background article for more: http://www.abs.gov.au/ausstats/[email protected]/featurearticlesbytitle/C35049FCB841741BCA256A1F0002C384?OpenDocument

  8. rob barrattMEMBER

    Can someone answer this:
    If the price of housing (in any given area ) is driven by the availability of credit, and the house buyer will have to fork out : S = House Price + Legal Fees + Duties.

    Then, if duties suddenly increase, assuming there is no increase in available credit, demand will drop until S above reverts back to the same total value. That is, until the perception in the market that sellers will now get less filters through.

    If that is true, then how can we define government tax holidays as constituting a “recovery”. Actually, the total debt has remained unchanged, it’s just that the vendor got (from the tax payer) a higher percentage of S than previously…

  9. As refinancing becomes a higher proportion of the total commitments the further the AFG numbers will diverge and the less accurate Nathan’s perdition of stock on market, and therefore demand, will be. In the past there’s been a high correlation as refinancing was less popular, but now the gap between new commitments and refinancing