Investors still hog wild in housing finance

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By Leith van Onselen

The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of December, which registered a seasonally-adjusted 1.9% fall in the number of owner-occupied finance commitments over the month:

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The number of owner-occupied housing finance commitments excluding refinancings registered a seasonally-adjusted 1.0% fall over the month to be tracking 8% above the five-year moving average level. The number of commitments were also up 14.8% on December 2012 (see next chart).

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The average loan size rose 0.6% over the month and was up 4.5% over the year. The below charts show the series on a 3-month moving average basis (in order to smooth volatility).  Note the recent spike in average loan size after falling since the beginning of last year.

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First home buyer (FHB) commitments fell by a non-seasonally adjusted 3.1% in December and represented just 12.7% of total owner-occupied commitments. However, they were up by 2% over the year (see below charts).

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Finally, if you’re wondering what’s primarily driving house price at the moment, look no further. While the ABS only provides the value of investor finance commitments, these were up by another 2.9% in December, 41% over the year, and hit the highest level on record (see next chart).

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Comments

    • Not sure.

      BofAML? ..

      “A daily close above 1273 confirms a Triangle breakout and further near term strength towards 1321, potentially beyond to the confluence of long term support between 1358/1381”

  1. Sweet RealEstate InvestingPonzi Jesus!! If the last graph is not a parable (see what I did there?) – I don’t know what else is.

  2. First Home buyers again look to be struggling. Of course, there is the debate whether the data is recorded correctly by the banks (in the absence of first home buyer incentives etc).

    But assuming the data is right, will LVR based MP actually have any impact on the market? (Apologies if this topic has already been addressed).

    • Investors don’t like paying LMI and in a rising market they can access equity to keep LVR’s below 80% – so no I think that MP tools would only punish FTB’s.

      FTB data is very suspect in the non grant states IMO.

      • That does not make sense to me.

        No one likes paying LMI, neither FHBs, OO or investors

        But investors get a tax deduction for the LMI and can capitalise into the loan and if your into the RE ponzi, prices always go up. So the sensible thing to do is maximize the borrowing from your existing equity, mate, take out some cash and take a trip to Bali. The money is bound to role in

        Now that makes sense!

      • That is a Very emotive response deep t.

        Maybe you don’t realise Any expense which is tax deductible is still a cost. If you could avoid paying it, you would. Investors more likely to do that compared to fhb.

      • Well you are right that LMI is deductible, but it reduces the ROI and it reduces any gains on sale. Capital gains and ROI are what investors want.

        Most better investors that I have observed would leave the property sit for a period during a rising market and then draw the equity up to 80% of an increased valuation for further investment. That process can be repeated until the market has a downturn – which smart investors should prepare for.

        A tax deduction for the sake of a deduction isn’t really a smart play. A cost is a cost. A return is more desireable than a cost.

        LMI is a seriously high cost – about 3% at 95% – who wants to pay 3% more for their house? To put that in perspective it’s equivalent to about 15% of the cost of a 20% deposit – so it makes a huge difference to the profit % on sale.

        To me there is a big difference to an investor just buying everything they see on the minimum deposit, to one using a structured approach of accumulation at the right price.

        That also allows an investor to buy in a down market when a fully leveraged investor can’t take advantage of a good buy.

        I think that long term one is taking on excessive risk and missing opportunities whilst the other is in a much safer position with a better ROI.

      • dumb_non_economist

        Peter,

        My guess is your investor makes up 1 in 20.

        Most of those I’ve spoken to, worked with, overheard etc wouldn’t know what ROI was, most wouldn’t know what gross/net yield was or what the av RE rental yield is, most wouldn’t have a clue what effect inflation or the inevitable IR rise will have on their investment outcome. Most can only say that houses double every 7 to 10 yrs.

        Most would know 10x less than I do, and THAT is f******g scary!

      • With respect DNE there is a tendency here for people to assume that investors are stupid people and all housing bears are wise.

        That doesn’t match reality I’m afraid. I can tell you which group are faring better, but you wouldn’t like the answer.

  3. House prices skyrocketing.

    Investors increasingly selling to each other.

    Gotta hand it to ‘Straya, we’ve worked it out!

    We’re all gonna be rich!

    That last graph is just UNBELIEVABLE

      • DONT PANIC

        Moody’s Analytics associate economist Katrina Ell says the disappointing data looks like a monthly anomaly, rather than a sign the housing market is running out of steam:

        “Nationwide prices are still rising and auction clearance rates indicate ongoing buoyancy in demand,” she says.

  4. You know, with such a blow-off in investor finance (+50%), and an apparent build up of foreign investor activity as well, house prices aren’t rising THAT fast really.

    I see it as positive if we need such a massive explosion of credit just to maintain ~10% house prices growth. Investor finance can’t keep rising exponentially for long and it seems that even a plateauing would reverse this ponzi market’s fortunes.

    • Good point.

      Look at the sheer devouring of credit as interest rates were lowered and comfort given to them being sustained down there.

      • It’s justified. Why would the RBA, who all own investment properties, raise interest rates and hurt the “recovery’ in house prices? It seems they are struggling to maintain the growth as it is. Anything, less than this kind of ~10% growth and many investors will start losing money. And as soon as this recovery slows or stops, they will drop those rates. There will be a day when we see ads for high-yielding interest accounts paying 0.80%, just like the US.

        The foxes are guarding our hen houses.

    • Imagine how strong the market will be when the fhb and oo return to the market.

      Also, all those people who sold last year now have cash and will need to buy or rent this year.

      • I wouldn’t suggest that if I were you, unless you want a home for the long term. Prices are now at or slightly above replacement cost.
        That does not mean prices can’t go higher but the easy gains have been made. Buying real estate in 2012 really was a no brainer.

      • @b_b I’m strongly allergic to “investments” that loose money …

        It was a no brainer in hindsight because prices went up in Sydney and Melbourne due to some factors that were not clearly evident.

        No the other factors that MB has been talking about like the mining cliff are approaching, it would be interesting to see how things go.