Please find below Nathan Webb’s take on the AFG June Mortgage commitment numbers. Enjoy!
It was another flat month for AFG mortgage sales, which continues the recent trend. While the raw number (6690) was down by 12%, the prediction was for 6556 which means that it came in slightly on the plus side, but only just. However there just might be something, not much, but something happening in the refinancing figures. I’ll get to that later…
But let’s start with a view of the actual versus predicted. Further ups-and-downs are expected over the next few months, with two good months followed by a drop in September, another good month in October, and then a big drop in December. All of this is driven simply by the number of days in the month, so we’re really interested in seeing any divergence from this pattern. A divergence would indicate something else going on, apart from just longer or shorter months, and might tell us where prices are headed over the next few months.
The second chart shows that divergence between the actual and predicted values. Values above the line give hope to bulls, and those below the line are for the bears. Make no mistake about it, June has been another flat month and continues the trend for 2012.
The mortgage sales data are then compared to SQM’s stock on market report, where there is very strong negative correlation. The third chart shows this, with the second chart inverted and laid over the top of the 3 month moving average of the monthly change in stock on market. The AFG results lead the 3mma by 1 month, and this month’s flat result is predicting a slight fall in stock. Mortgage sales aren’t the only driver of this so there have been significant divergences in the past, but I would put money on a fairly flat result next month. Hmm… Maybe Black Dragon can come up with a daily index that can be traded on the ASX.
The correlation with RP Data’s house price index is also pretty good, with one notable exception being May 2012. That month is still having an impact on the next chart. The increased volatility since they went to a daily index is showing up, but then again, does anyone really know what RP Data is measuring here?
Something definitely looks amiss, however, and various hypotheses have been thrown out there, including AFG increasing their market share (still to be confirmed – sorry Peter Fraser), AFG being overweight in QLD and WA and underweight in VIC, and that I am using total mortgage sales, including refinancing, instead of the ex-refi numbers.
That last point hasn’t been an issue for most of this year. The model shows roughly the same result with either Total Sales or Sales Ex-Refinancing (see chart below). But June has shown a difference finally, and might just be the start of another leg down. The double interest rate cut may have delivered a much greater share in refinancing than previous months, rather than new mortgages.
The share of refinancing shot up by 35.8% to 39.1%, which is the biggest share since July 2011, and the biggest change since July 2008. A word of warning though – June tends to be a good month for refinancing, so there is seasonality at play, and this is only one month. I’ll wait to make judgement about this. For now it looks like the recent trend will continue and the market will remain fairly flat for the rest of the year.
