Australian Finance Group (AFG) has released its housing finance data for the month of August, which registered a 3% increase in mortgage applications over the month, but more importantly (since the series isn’t seasonally-adjusted) a 13% increase the number of applications over the year. It was also the Group’s strongest August on record, with 8,767 mortgage applications (valued at $3,613 million) processed over the month (see next chart).
A breakdown of mortgage application growth across the mainland states is provided below:
- Up 29% in New South Wales over the year;
- Up 15% in Victoria over the year;
- Up 2% in Queensland over the year;
- Up 8% in Western Australia over the year; and
- Up 15% in South Australia over the year.
AFG also reported shrinking first home buyer (FHB) mortgage share in August, driven by weakness in New South Wales, Queensland, and Victoria following the removal of grants on pre-existing dwellings:
- National: 11.3%, down from 15.9% in August 2012;
- New South Wales: 4.3%, down from 13.1% in August 2012;
- Victoria: 11.2%, down from 17.7% in August 2012;
- Queensland: 6.0%, down from 13.0% in August 2012;
- Western Australia: 24.2%, up from 20.7% in August 2012; and
- South Australia: 12.2%, down from 13.4% in August 2012.
Investors are now driving new mortgage demand, with their share of mortgages rising to 38.7% in August, according to AFG (see next chart).
Much of this investor demand is being driven by New South Wales, where investors accounted for nearly half of all mortgages in August. Below are the investor shares by market:
- National: 38.7%, up from 36.4% in August 2012;
- New South Wales: 49.5%, up from 44.7% in August 2012;
- Victoria: 36.7%, up from 35.2% in August 2012;
- Queensland: 35.8%, down from 36.6% in August 2012;
- Western Australia: 28.4%, down from 29.1% in August 2012; and
- South Australia: 32.9%, up from 29.5% in August 2012.
As noted previously, some caution should be exercised in interpreting AFG’s figures and extrapolating its results to the overall mortgage market, as measured by the Australian Bureau of Statistics (ABS).
AFG’s data measures mortgage applications, whereas the ABS measures actual mortgage commitments. According to AFG’s General Manager of Sales & Operations, Mark Hewitt, just over three quarters of applications on average become mortgage commitments, although this figure can obviously fluctuate month-to-month. AFG’s market share has also been rising in recent years.
Therefore, while AFG is a useful guide as to the strength of mortgage demand, its results do not necessarily translate to the overall mortgage market as captured later by the ABS.
To illustrate, consider the below chart showing how the growth of AFG mortgage applications has diverged significantly from ABS mortgage commitments since November 2009:
If we take AFG data at face value it is difficult not to be concerned at the increasing domination of the market by investors. This is a clear sign that housing has been swept into a “financial repression” rally that lacks crucial fundamentals. The benefits of this must in question. We may be seeing modest follow through in new home construction but when circumstances change and returns rise elsewhere, house prices will be left without investor support yet unaffordable to owner-occupiers.
For what it’s worth, RP Data’s Mortgage Index, which is supposed to provide a leading indicator of housing finance commitments, shows a recent falling trend in mortgage activity after a solid up trend through July (see next chart) and a more recent rebound.
