Housing finance hits two-and-a-half year high

By Leith van Onselen

The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of September, which registered a seasonally-adjusted 0.9% increase in the number of owner-occupied finance commitments over the month. August’s results were also revised up by 0.4%:

Arguably, the most important figure in the release is the number of owner-occupied housing finance commitments excluding refinancings, which registered a seasonally-adjusted 1.2% increase over the month to the highest level since February 2010. After bottoming in March, the number of commitments is now in a clear uptrend. That said, the number of commitments (excluding refinancings) remains some -6% below the five-year moving average level. August’s result was also revised up by 0.4%.

The value of owner-occupied finance commitments also hit the highest level since February 2010 after bottoming in March 2012:

Unfortunately, the ABS only provides the value of investor finance commitments. These rose by 9% in September and hit the highest level since May 2010:

Overall, it’s another solid result that once again contradicts the RBA’s credit aggregates figures, which registered the slowest annual housing credit growth in the series’ history. This suggests that pre-existing home buyers are likely paying-off their mortgages quicker, which is offsetting some of the new mortgages being written.

It is also uncertain the extent to which the owner-occupied results nationally were affected by a possible a pull-forward of demand in New South Wales and Queensland from first-time buyers rushing to beat the October expiry of the first home buyer’s grant on pre-existing dwellings.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

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  1. No shortage of dumb wildebeests in good ol’ Oz. 🙁

    The merest sniff of better times, no matter how contrived or how much statistical chicanery is involved, and there they all go, queueing at the Loans department of the Bank again. 🙄

    Pass the sick bag, Alice!

    ♫ When will they ever Learn ♪
    ♪ When will they eeevvveeer learn? ♫ ♫

    • In this case as an investor I have to agree – even the smart ones should take the bait if they know the herd will react in a certain way. After all you invest on what the markets will do – not what you think they should do given the information. I don’t think people really understand the stats – they just trust the conclusions made and react either out of the greed or fear that comes from these.

      The housing market has the most uneducated economic people playing with the biggest amount of money. Most people I know don’t know how to calculate break even yield vs capital gain on their housing investments. They just go to the bank and buy. How do you expect them to actually look at the value proposition of a house vs other investments? They invest in a house because that’s about the level they understand – and for most people this leaves only one investment to place all their money.

      • Spot on with all of that! And as we know, when a herd gets frightened, it becomes blindly destructive. I recall Easter 2008, when the Irish herd panicked….it went from a slightly nervous “property always goes up, doesn’t it?’ to ‘get me the hell out of here..” almost overnight. But of course, our herd is different….

      • Lothar Grosserschlongen

        Your observation is spot-on. Further, I believe this is often overlooked as one of the primary drivers of inflated pricing. That is, property is the choice of investment/speculation for the uneducated.

        ‘buy land, God’s not making any more’
        ‘property always goes up’
        ‘negative gearing is great because you get a bigger tax-return’

        Hence, ‘this market can remain irrational a lot longer……’.

        • It can remain irrational almost indefinitely. It will drive the more educated people who are smart and can actually do analysis mad. They will scratch their heads and wonder why it’s not falling and continuing to go up or even worse defying the odds and staying constant for a really long time.

          For housing to correct the herd needs to be proven wrong; the only thing I see doing this is a complete collapse of the governments finances along with a big economic event. In other words housing debt will probably destroy the country eventually just like Ireland. The only difference is that our inflation (not the reported figure but the cost of living) is highest in Australia which means inflation can keep this going a lot longer. Every crisis we go through that the analysts are proven wrong only cements the irrationality of the herd as truth. After all you can’t argue with results.

          I think the average young person should just move country. After all every successful dollar of capital gain profit has to be paid by someone later in the chain.

          • High/low inflation is not causing or stopping bubble bursts. Inflation change we are talking about here is just result of a bubble creation or burst.

            Ireland had much higher inflation (nominal and real) prior to bubble burst. Actually Ireland had the one of highest inflation of all developed countries at the time – CPI around 5%.
            After the burst in late 2008, inflation dropped ( all the way down to -6%).

            Inflation is the result of money supply. During housing boom, commercial banks create vast amounts of money and give it to ordinary people. This money immediately available for spending drives prices up. After the burst, credit freezes, money creation stalls while people continue paying off debt – money disappears from the market; and inflation goes down.

            Some governments try to offset this money creation reversal process but they cannot even closely match previous levels of money creation. Inflation usually stays low, especially prices of non-essential goods and housing.

          • +1 AK: “For housing to correct the herd needs to be proven wrong.”

            Time is the teacher. Eventually some of the 1.2 million innumerate middle income negative gearers will realize capital values haven’t moved since 2009 and that residential landlordism is a mug’s game.

            The more immediate crisis is in state governments reliant on Stamp Duty revenues. VIC and QLD are bleeding but refuse to acknowledge.

            Jessica Irvine’s abuse of SD is a gem

          • Raveswei, debt dilution is happening on a mass scale. The more debt is issued the more inflation is caused that is true. But it devalues the existing debt that the country has (inflation actually makes sense – existing dollars as claims become less valuable against the country since more debt is backed by the same assets if used unproductively).

            It’s a matter of when the music stops in this cycle. As long as the herd choose to participate with more debt the party can keep going as their actions make the existing debt easier to manage through the inflation they create as well as the profits they give in capital gains to existing holders.

          • “only difference is that our inflation (not the reported figure but the cost of living) is highest in Australia which means inflation can keep this going a lot longer.”

            Are you suggesting that the high inflation in Australia can somehow make buying an overpriced house a better investment than otherwise?

            I do not think so. High inflation will make tomorrow’s purchasing power of a dollar lower. Uneducated people might take comfort from nominally stable housing price, but that is their problem.

          • Never suggested that dumpling. I just said it can keep the party going – i.e as long as their house increases by a little even if it doesn’t keep up with inflation they are better off because they were highly indebted anyway. In the end most Aussie’s are doing a pair trade (shorting money, long houses). As long as the spread increases in their direction they feel like they are more ahead.

            Sure the risks of investing in housing are high – but the general population isn’t doing this risk analysis like I said previously. Its their only investment option as as long as the numbers nominally work out they will stick with it.

            Eventually the music will stop but I don’t know when. My point is that it could go on a lot longer than most people realise.

          • AK, I just misunderstood that particular point. I now get your point and post makes a lot of sense!

            Isn’t it nice to have a system that allows many people lose money (purchasing power) without realizing it? I would rather have happy money-losing-people than disgruntled ones who might cause social problems.

      • You are so right AK. You only have to spend a small amount of time on MSM property comment forums to be hit between the eyes with this.

      • “The housing market has the most uneducated economic people playing with the biggest amount of money.”

        I cannot agree more. I also agree that “After all you invest on what the markets will do – not what you think they should do given the information.”

        But the risks in the housing market today are too much for me, especially when you can find much better investments elsewhere.

      • The housing market has the most economically uneducated people playing with the biggest amount of money.

        It’s called “bread and butter” by mortgage brokers.

  2. Your last paragraph is the most important one.

    We cant make any conclusions until these timing differences wash out.

      • TheRedEconomistMEMBER

        There were plenty of renters that took the bait in NSW.

        They did not miss out on the first home buyers grants before it ceased.

        Watch the MSM fall over themselves about this result. It will be highly unlikely they will mention the ceasing of the FHB on existing property in NSW bringing forward a lot of purchases.

          • Mining BoganMEMBER

            Oh, FFS!

            The good thing is that I reckon even the biggest noob would smell the desperation in this piece.

            Where’s that Collyer bloke? Don’t buy now!

          • Wow.

            Stop looking, we have a winner.

            …and whats with that bizarre photo?

            Andrew Keane is editor of Say goodbye to Your Money

          • “”According to a recent study by KPMG, 60 years ago house values in Australia stood at roughly seven times the yearly household income and today that figure stands at very close to 6.9 per cent,” says director Ken Raiss.”

            It then goes on to this:

            Median house prices for November 1997 and November 2012:
            Adelaide: $116,500 – $385,000
            Brisbane: $142,000 – $430,000
            Canberra: $162,000 – $525,000
            Darwin: $180,000 – $545,000
            Hobart: $111,000 – $313,000
            Melbourne: $192,000 – $508,000
            Perth: $136,600 – $475,000
            Sydney: $245,000 – $590,000”

            Now, I was still a youngster in 1997 but are they seriously suggesting that the average income was $17,000?

          • Chunder, that piece is a jewel. Rupert Murdoch should be demanding Keane’s salary and column-inch payments back from the politico-housing complex in whose name this Kool Aid was written.

            It occurs to me that residential housing investors don’t actually know what innumerate means and so ignore it. If investors have no measures to judge performance, the Great Australian Land Bubble could go on indefinitely.

            My facebook Don’t Buy Now! group farewelled a couple to Seattle WA last week where $600,000 bought them a beautiful 4 bed 2 bath + pool on an acre 20 mins from Microsoft. Can we blame them?

            Don’t Buy Now!

  3. We saw the same cycle in 2011 although 2012 is stronger. It’s interesting but not conclusive. Where we are going is more interesting.

    • It’s what the RBA wanted to avoid, though more data is needed. Makes an interest rate cut next month harder.

  4. Isolating out NSW, this is the lowest number of September commitments (total – refinancing)in the series history. Nothing to get too excited about there.

      • Month Owner Occupied total – refinancing
        Sep-2003 13037
        Sep-2004 10082
        Sep-2005 11220
        Sep-2006 10802
        Sep-2007 10605
        Sep-2008 8654
        Sep-2009 12510
        Sep-2010 8372
        Sep-2011 8812
        Sep-2012 8361

        Thats why I compared Septembers. 2012 is the lowest on record. Must be the investors, good luck to them.

  5. For example, the unemployment rate for the 10 years of the 50’s were:


  6. I have bought and sold land, and houses, all my life and I have never seen such a sustained elevated price in Australia – ever.

    It usually booms for a couple of years and then tanks.