Housing finance rips

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By Leith van Onselen

The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of June, which registered a seasonally-adjusted 2.7% increase in the number of owner-occupied finance commitments over the month. It was the fifth consecutive increase in owner-occupied commitments, but missed analyst’s expectations of a 2.2% rise.

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The number of owner-occupied housing finance commitments (excluding refinancings) registered a seasonally-adjusted 2.2% increase over the month of June to be tracking 7% above the five-year moving average level. The series is also up 14.9% on June 2012.

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The average loan size rose 0.7% over the month and was up 0.9% over the year. The below charts show the series on a 3-month moving average basis (in order to smooth volatility).  Note the the improvement in average loan size since falling over the first quarter.

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First home buyer (FHB) commitments weakened materially, recording a 10% non-seasonally adjusted decline in June and represented just 15.1% of total owner-occupied commitments. They were also 13% lower than June 2012 (see below charts).

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The ABS only provides the value of investor finance commitments. These were down by 1% in June but were up 18% over the year (see next chart).

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Overall, this is another strong release, which is being reflected in recent house price data. The one big negative is that first home buyer (FHB) mortgage demand remains weak, and is likely to weaken further from July as changes to FHB Grants favouring new construction over pre-existing dwellings take effect in Victoria, Tasmania and the ACT.

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Comments

  1. Load up on cheap mortgage debt and negatively geared malinvestment.

    It’s the only game in town.

      • Yeh, weep for those unfortunate gen Y prospective FHB’s who have been waiting for prices to crash… they waited too long and have missed out forever.

        “The one big negative is that first home buyer (FHB) mortgage demand remains weak”…. wait until Kevin announces the new $15k first home BUILDERS grant – FHBs and residential construction to the moon!

    • Understanding how the bond market works has really helped me to realise the folly of the current housing market.

      All those poor suckers buying in at the top. Or is it?

  2. Rising prices and weak income growth combine to exclude first timers from the market. No surprises there.

    Low rates are not stimulating investment in the real economy; instead they are prompting yet more speculation in property.

    This is a giant stuff up.

    • Low interest rates deter investment in the real economy. Why on earth would anyone risk business/new business if the alternative was ‘no risk’? The second the RBA cut rates a couple of cuts back, was the second that the death knell to any hope of revitalisation of your economy via business creation tolled – because Australians then knew what the Stevens’ Put was….

      • I just feel such a fool!!!! I’ve worked, saved, invested in productive enterprises for 45 bloody years through a lot of very hard times…..wtf for? Stupid bloody govt and bloody minded unions try to destroy everything productive and they’re mostly successful.

        I could have and should have just sat on my arse, did nothing, produced nothing, got rich and now I’d have the RBA and Govt making sure I didn’t suffer any losses.

        JHC! Sorry but the divine imprecation is necessary. I find myself in a world of total insanity.

      • Jumping jack flash

        Yes, risk. Its an important thing to think about.

        I was under the false impression that IR levels somehow reflected risk.

        Not any more it seems.

        Unemployment up. Risk of default increases. Interest rates lower. What?

        Retail sales tank. Risk of default increases. Interest rates lower. Huh?

        I suppose these days they just put their hands up for a bailout. No risk.

        So what is the need for interest rates?
        None, it would seem, they just cost banks money from paying interest on deposits.

        So therefore ZIRP forever!

        You bewdy!

      • Blood oath JJF!!! Why would anyone now risk anything doing anything? Why save?
        Get a Govt job, lever up into a few houses, do nothing, buy a new SUV and enjoy these bounteous gifts! Geez life couldn’t get much better than this. It must have been why we were put here…we finally have the answer to the great riddle of life!!!

      • That’s true, flawse. It’s very disheartening to see more (and cheaper) debt being pushed as the answer to too much debt. But these things only work until they don’t. And despite the ridiculously low interest rate environment, house prices aren’t exactly booming. Yes, they’re moving upwards, but few people would dispute that the effect of interest rate cuts is diminishing. The very heavy existing debt load is having an impact. The cheeese is being dangled, but it’s not luring the mice at the same rate it used to. I’m sure the RBA will try to squeeze some more juice out of this lemon and I’m sure they’ll get a bit, but I think we’re getting near the end.

    • thomickersMEMBER

      funny thing…at the financial planning firm i work, in 2011 there was a new pre-retiree client we did some work for. age 61, 4 IPs (with syndication) worth $1.1 mill & $1 mill debt interest only, $100k pa income. Struggling hard and starting to get personal loans.

      His gross rental yield was -3.5%pa.

      now with all these interest rate cuts over the last 2 years he’s gotten almost $25,000pa in interest savings, whilst fully retired pensioners & conservative investors & potential FHBers have been generating less risk-free income on deposits. Crazy! we rely on naive & aging property speculators to stimulate the economy. We’re going to do just fine (badly)… all my hedges are in place.

    • But whats the alternative? Don’t cut rates?
      It’s not the RBA’s fault that this market is completely dysfunctional.

      • We have to start correcting the distortions in the economy. Cutting rates just makes them worse. The eventual price we have to pay becomes higher.

        The purpose of cutting rates is only to increase debt at any particular policy setting. How is that good?

        You’re right it’s not only the RBA’s fault…not exactly. However at the moment the RBA KNOWS and it is statedpolicy that the sole response to their cuts is increased housing prices. This is their POLICY.

        One needs to go back in time a bit to really allocate blame around. The RBA has some really stupid policies so it needs to take its share.

        This damned thing is five decades in the making. There’s probably enough blame for everyone including ourselves.

    • This is a giant stuff up.

      It isn’t a stuff up. It is a deliberate policy of a bankster captured regulator aka RBA.

      And these days, as the Libor investigation showed, it doesn’t take much by way of bribery to manipulate the rates. One Deutsche Bank FX trader asked for lower rates to be declared to the market in exchange for a day old Sushi Roll!!

  3. Bloody hell, it’s taking off like a missile isn’t it. Guess that’s what cheap debt will do. I gather the “slow melt” theorum is “on ice” for a few years now?

    • I think the slow melt theory still applies in a longer term sense, but we’re experiencing a short term surge due to the determination of the RBA and gov’t to load us up on more debt to get the economy through the end of the mining boom. They know it’s wrong and immoral, but they also know there’s nothing else that can be done in the short term. THey’ve allowed the houses n holes economy to develop and now that the holes are drying up, pumping the houses is about all they can do for now. Private debt levels are too high for any significant house price boom, but that doesn’t mean there won’t be a mini blow-off or two in the broader context of the slow melt.

      • I dunno Ralph…they just have to create enough inflation. Now either every single person over at the RBA is a total idiot or high inflation is the policy. My best information is that everyone at the RBA is not an idiot.

  4. Flawse

    If you would allow me I can give a history lesson. In the immediate past there have only been 5 times when holding $A cash has been worthwhile for Australian residents.
    1.the 60’s credit squeeze
    2.1974-1975
    3.1981-1982
    4 1989-1993
    5.perhaps 2011-2013
    Otherwise the interest one receives or the inoome earned is heavily taxed and devalued by inflation and RBA printing of money.
    The trick is to invest in your own business or business property and work like stink. However if you look across the landscape say at Samuel’s ACCC where he increased the headcount from 270 to 870 during his time and paid them all a motza who would bother doing what you do comparatively.
    Going forward (as a politician would say) will the RBA go to water and print. I watch M1 and it has been held tight as a drum for virtually 5 years but the last reported month they printed 3% annualised (which you cannot do on one month) this is about 40% This still pales in comparison to the Fed Reserve who have done about 260% or B of England 240%. Time will tell.

    • Spot on Douglas.

      I held most of my portfolio in $AUD cash throughout 2011 and 2012. Return was about 5-6% pa – not bad considering what other investments were doing at that time.

      Moved almost everything back into risk assets (equities and property, NO GOLD) at the beginning of 2013, except for a 10% allocation to cash (sitting mostly in $US).

      Portfolio is up about 25% this year. Much better than 3-4% on offer in $AUD cash.

      Don’t listen to the pessimists and habitual whingers on MB. I know the system is broken, but I use the systemic faults to profit rather than constantly complain about things I can’t change.

      • Greco

        A builder mate of mine said to me that to really make money your investments and your main source of income need to be two different things.
        I’m guessing you are in that position. If you make a mistake in business, or in the case of a farmer a drought, that mistake can soak up your income for a decade one form and another. It can make it difficult to be ‘contrary’ with spare cash.

        Just thinking!

      • reusachtigeMEMBER

        I have to agree that there is an argument for just playing the system rather than letting yourself be defeated by it. Sucks, but hey!