Yesterday’s housing finance data, whilst strong overall, was once again concerning from the viewpoint that first home buyer (FHB) demand remains weak, despite nominal mortgage rates at near multi-decade lows. As shown below, the lion’s share of mortgage demand in Australia is currently being driven by investors and upgraders:
Looking at the state-by-state break-down, you can see that the FHB retreat has been driven by New South Wales and Queensland, where grants on pre-existing dwellings were cancelled in October 2012 (see below charts).
Whereas the FHB share fell to just 14.7% nationally in July, well below the 5-year moving average (5yMA) of 20.0%, the shares in New South Wales and Queensland were just 7.7% and 11.3% respectively, down from 5YMAs of 19.6% and 18.4%.
Perversely, the number of FHB housing finance commitments in Victoria rose by 7% despite it joining New South Wales and Queensland in cancelling the FHB grant on pre-existing dwellings from the beginning of the month. This increase is likely explained by a surge in the number of FHB sales contracts signed in June, whereby buyers obtained finance in July. Hence, the expected downturn in FHB demand in Victoria following the removal of subsidies is likely still to be reflected in housing finance the data.
A final interesting observation is that the average loan size for FHBs has shown minimal growth over the past four years. Since March 2009, the average FHB mortgage has grown by only 1.4%, whereas the average mortgage for the market as a whole has grown by 7.9% (see next chart).
With changes to FHB grants favouring new construction over pre-existing dwellings still to take effect in Western Australia and the ACT from September, and the effects of the 1 July cancellation of grants in Victoria yet to be reflected in the data, mortgage demand from FHBs is likely to weaken further over the remainder of the year.