NSW FHB mortgage demand hits 20-year low

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By Leith van Onselen

Yesterday’s housing finance release from the Australian Bureau of Statistics (ABS) revealed a sharp contraction in first home buyer (FHB) mortgage demand following the October 2012 expiry of first home buyer grant subsidies on pre-existing dwellings in New South Wales and Queensland, as well as the 1 July 2012 expiry of the $13,000 first home bonus on newly constructed dwellings in Victoria.

According to the ABS, the non-seasonally adjusted number of first home buyer commitments fell by -14% in the month of November to just 7,921 commitments. This was -21% lower than November 2011 and the lowest November since 2003 (see next chart).

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FHB’s share of total owner-occupied housing finance commitments also fell -2.9% to 15.8% in November, which was the lowest monthly reading since July 2004 (see below chart).

The decline in FHB commitments was driven by steep falls in New South Wales and Queensland (-34% and -33% respectively), which were adversely affected by the October expiry of the FHB grant on pre-existing dwellings. FHB commitments also continue to trend lower in Victoria following the 1 July expiry of the $13,000 FHB boost on newly constructed dwellings. By contrast, FHB mortgage demand in Western Australia continues to surge (see below chart).

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In fact, the number of New South Wales FHB commitments in November was the lowest in over 20 years, whereas the FHB share of New South Wales finance commitments fell to only 9.5% in November, which was the lowest monthly share since July 1991 (see below chart).

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New South Wales FHBs seem particularly sensitive to fiscal incentives, with mortgage demand temporarily surging in response to the 2008-09 FHB Boost in the wake of the GFC, the expiry of FHB stamp duty concessions at end-December 2011, and the recent October 2012 expiry of the FHB grant on pre-existing dwellings (see next chart). On each occassion, FHB demand has fallen away sharply following the expiry of these schemes:

It must be said that the efficacy of the schemes appears to waning over time as well.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.