Behind the numbers: AFG shows more stability

Please find below analysis from Nathan Webb on the August AFG housing finance data released earlier in the week.

Last month I made the prediction that the housing market was heading back down.  It hasn’t taken long for that to look like a bad call!  After two months below expectations, AFG mortgage sales have come back solidly into the positive.  AFG themselves have proclaimed it as the “strongest mortgage month for three and a half years”.  There were a total of 7730 mortgages for August, up strongly from 7027 in July.  However, the point of this analysis is to strip out the effects of weekends and public holidays.  There was an extra trading day in August, which explains part of the increase, but only part.

The first chart shows the overall view, comparing the actual volumes recorded by AFG along with the expected volumes.  After dropping below the red line in July, the Actuals are clearly above the line in August.  After taking the number of trading days into account, the expectation in August was for 7562, which means that the difference between the actuals and the predicted was +167.

The chart also makes it clear that the raw figures over the next few months will be up and down.  Next month is expected to see a decent drop, down to 6500, before a bounce back up to 7500 in October.

The second chart is a plot of the difference between the green bars (actual) and the red line (predicted) from the first chart.  This gap is referred to as the “residual”.  Periods like 2010 lead to large negative values, while 2007 and 2009 caused large positive values.  After posting the first negative result in 6 months, this gap has quickly turned back to the positive.  It has now been roughly even for 10 months.

The residuals are then compared to SQM’s stock on market report, where there is a very strong negative correlation.  The third chart shows this, with the residual inverted and laid over the top of the change in Stock on Market.  I’ve used the 3 month moving average to smooth things out.  The AFG results lead the 3mma by 1 month.   Stock on market went up by 7000 in August, and the forecast is for a further increase before it goes down again.  The net result is that with the continuation of the stable mortgage sales, stock on market is unlikely to change all that much over the next 2 months.

The correlation with RP Data’s house price index is also pretty good, apart from the recent volatility.  This pattern of extreme volatility should be expected to continue, thanks to the new daily series.  The overall trend points to very modest growth, in the vicinity of 2-3% per annum, over the next 6 months.

So don’t expect much over the next few months.  Stock on market should be roughly stable, prices should rise ever so modestly, and the Australian housing market continues to tread water.

Leith van Onselen


  1. Just anecdotally here in Brisbane commercial property values are currently improving as well.

    Bewdy! We can settle down and all get rich by selling each other houses!!!! No need to work!

    • No,no. Cut the Cash Rate a heap more – to say 2.5%; gives business back their competitive advantage, and do the other cut at the same time – snip off the Negative Gearing umbilical cord. Landlords can’t complain (“Rents will sky-rocket!! I’ll sell all my investment properties!! “, you get the gist) as interest rates at a lower level is their trade-off for the change. What’s there to complain about in that?

  2. To what extent do you think this improvement is due to first home buyers entering the NSW market due to the state government’s increase in grants for new properties?

    • NSW did well in July, but not as well in August. Most of the increase seems to have come from Queensland (from very low levels to slightly low levels) and WA.

      That could just be statistical noise – there seems to be a fair bit of that when it comes to the state breakdown, which is why don’t dwell on them.

    • NSW new home grant doesnt kick in til 1 Oct….
      but expect a rush for Sept 30 closing of FHB grant for existing homes to show up in Sydney auction clearance rates for next 4 weekends

      • TheRedEconomistMEMBER

        Agreed. I have been looking to buy for quite some time. I am not a first home buyer so not eligible for any grant.

        I looked at some open homes near Sydney’s North West. There seemed to be plenty of tire kickers and optimistic Agents.

        The removal of FHB grants on existing property has brought foward some buyers I suggest, which is priced into the what the vendor wants.

        I will continue to sit on the side lines until all stimulus on gone.

        Frsutrating though… with a wife who want her own home.

        But I cannot commit on a place when the mininmum repayments on a $500K+ loan is almost double what I pay in rent.

        Plus, I have not factored in rates, nor the $25k+ I may need to spend soon on a updated kitchen or bathroom.

        Happy to keep saving…. and have the $120k + deposit grow.