AFG: First home buyers collapse

ScreenHunter_12 Sep. 23 12.54

By Leith van Onselen

Australian Finance Group (AFG) has released its housing finance data for the month of February, which registered a seasonal 39% jump in mortgage applications over the month, but more importantly (since the series isn’t seasonally-adjusted) a 17% increase in the number of applications over the year. It was also the Group’s strongest February on record, with 8,740 mortgage applications (valued at $3,759 million) processed over the month (see next chart).

ScreenHunter_1489 Mar. 05 09.06

AFG also reported a sharp decline in first home buyer (FHB) mortgage share in February – from 11.8% to 9.9% – driven by a large decline in FHBs in Western Australia. Here’s how FHB mortgage demand has changed over the year:

  • National: 9.9%, down from 12.9% in February 2013;
  • New South Wales: 3.4%, down from 4.5% in February 2013;
  • Victoria: 10.3%, down from 17.1% in February 2013;
  • Queensland: 6.9%, up from 6.4% in February 2013;
  • Western Australia: 19.5%, down from 24.5% in February 2013; and
  • South Australia: 13.1%, up from 12.9% in February 2013.

However, investors are still driving new mortgage demand, with their share of mortgages at 38.9% in February, according to AFG (see next chart).

ScreenHunter_1490 Mar. 05 09.13

Below are the investor shares by major market, as well as the changes over the year:

  • National: 38.9%, up from 34.7% in February 2013;
  • New South Wales: 47.5%, up from 43.4% in February 2013;
  • Victoria: 38.4%, up from 34.0% in February 2013;
  • Queensland: 32.3%, down from 34.2% in February 2013;
  • Western Australia: 32.7%, up from 26.4% in February 2013; and
  • South Australia: 33.7%, down from 34.6% in February 2013.

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:

ScreenHunter_1491 Mar. 05 09.21

Nevertheless, the AFG data supports the ABS housing finance release for December (the latest available), which revealed a continued dominance of investors in the mortgage market.

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  1. casewithscience

    If there are enough BB, SMSF or foreigners prepared to take the slack, the market could remain bouyant.

    The question is a policy one: do we really want a world where property is only obtainable by the wealthy, or inherited through family? Locking young-lings out of property could be a social disaster of epic proportions.

    Abolish negative gearing and let the BBs take the pain.

    • In addition abolish the Significant Investor Visa Program. See article in the following link:

      It is significant to note that the Australian Government has really not done it’s homework when coming up with these trophy chips to access foreign capital.

      “Citing its “limited economic benefit,” the Conservative government said on Feb. 11 that it intends to kill the program, leaving behind the 65,000 people on an enormous backlog of applicants.”

      “one of the men bought a house in Vancouver for $2-million as he waited for admission to the country.”

      So we can return to the argument that @b_b postulates on this blog, why import capital when we can just print here to provide bank balance sheet entries?

      I return to my argument that these families have little interaction with the economy here, they access are schools system, health system and welfare system once they are set up in their rat box or mansion and sit back and sponge off the middle class welfare system Australia has in place at a COST to the Australian Government and State and Territory Governments far greater than the stamp duty and collective rates payments they receive over the life of the house.

    • “If there are enough BB, SMSF or foreigners prepared to take the slack, the market could remain bouyant. “

      casewithscience I think you (and anyone else that has the same view) brush up on your bubble-nomics.

      You see an asset class which relies on continuous capital gains which are not explained by increases in fundamental value (in this case stream of rental income/avoided rent) is unsustainable.

      The more and more capital gains deviate from fundamental value, the more and more you need more speculation. If you don’t (let’s say prices flat line) – investors are making heavy losses. Things quickly turn until asset values hit fundamental value again.

      That make sense to you?

      The market cannot remain permanently buoyant, with ‘cashed up foreigners’ or otherwise. Once those ‘cashed up foreigners’ start to experience losses. It’s a slippery slope down.

      • casewithscience

        I have no doubt that there is a bubble, but that is not the point. The point is that a bubble does not necessarily pop at any particular time, bubble (like the Aus housing bubble which has been going since the 90s) can continue to inflate for a long time so long as capital continues to inflow.

        The inertia of a property market is to keep up (because people don’t want to crystalise the loss) until there is a hit. Unless there is great pressure to seel, I suspect many of the foreign owners and BBs will simply hold onto the asset – thus restricting the supply side and continuing the upward pressure on prices.

        My broader point is that, while the bubble is going (and it could keep going for another 5 or 10 years), it results in a socially unjust result for first home buyers.

    • I highly doubt that’s the #1 driving factor for the vast majority of first home buyers..

      They’re trying to gain a foothold in the market, where the only way of doing so is buying an investment property with the view to rent it out for a year (or two, at most) before moving in themselves. The negative gearing component (worth, what, $5-10kp.a., max) would be much less than the rental income they’ll generate ($20-$30k p.a.).

      They’re simply buying now so they lock in today’s price, and have a bit of rental income to help in what is typically the most difficult year in servicing a mortgage.

      Besides, FHB’s are less likely to be in the top income tax threshold, so the benefits of negative gearing are negated.

      • It’s the only way they can afford to get in. The tax system is forcing them into it.

    • Anecdotally, I know 2 guys rorting the system and about 30 that have just given up on the idea altogether.

    • Don’t know anyone doing this. Don’t know anyone who has bought a house/unit, and all my friends are around 29-31 (all professionals). Anecdotal, but my experience.

    • How convenient – FHB became investors.

      They don’t have enough money to buy a place to live in, but they have enough to invest in the same sh** and in addition to pay rent somewhere else in welcoming Sydney just to save some bucks from taxation.

      People who believe this sh*** must be very much shortsighted investors with vested interests in the housing casino.

      Actually if FHB disappear with the speed they do now, soon there won’t be any problem about FHB and housing affordability, because there won’t be any FHB at all. Magic, isn’t it, the problem is slowly resolving by its self. No need of any structural and policy changes.

      • angry much?

        Like footsore mentions, below, these first home buying “investors” are still living at home.. saving up as much as they can before they kick the tenants out in the next year or so. All while being called ‘lazy’ for not moving out 🙂

    • I don’t know of any ‘investors’ but I do know of a few youngsters who still live at home rent free even though they have entered home ownership. Not really ownership, they have a mortgage.