CoreLogic’s head of research, Tim Lawless, has released interesting research on the boom in new mortgage commitments since the May Federal Election:
Since moving through a trough in May, the value of new owner occupier home loan commitments has increased by 17.3% through to the end of September and the value of investor loan commitments is up 8.4%.
The latest ABS data on new housing credit showed a sharp rise in the value of home loan commitments, driven by a surge in owner occupier lending as well as a smaller rise in investment lending.
The rise in the value of owner occupier housing finance commitments over the September quarter (+12.1%) was the fastest quarter-on-quarter gain since the September quarter of 2015 (13.7%), taking the value of new owner occupier home loan commitments 17.3% higher since bottoming out in May earlier this year.
Growth in investment lending hasn’t been quite as strong, however the value of investment loan commitments was up 6.0% over the September quarter, which was the fastest gain since the December quarter of 2016. The value of investment loan commitments is now 8.4% higher than the May 2019 trough.
With owner occupier credit outpacing investment credit, investors now comprise the lowest portion of housing loan commitments since the ABS records commence in 2003, currently tracking at 24.8% of the value of new mortgage commitments. In contrast, shortly after the first round of macro-prudential rules were introduced in December 2014, investors comprised 43% of national mortgage demand.
The trends in housing credit are similar across the states, with the value of owner occupier loan commitments generally outpacing investors.
New South Wales
The value of owner occupier loan commitments was up 12.3% over the September quarter, compared with a 3.3% rise in investment. Although investment credit growth is slower, NSW has the largest concentration of investment activity across the states, with investors comprising 30.5% of mortgage demand based on value. First home buyers have surged higher over the past couple of years, as stamp duty exemptions and lower housing values have encouraged first timers back into the market. First home buyers have comprised more than 25% of owner occupier mortgage demand since March this year, more than double the proportion of first home buyers prior to the market peak.
The value of owner occupier home loan commitments was 11.3% higher over the September quarter, compared with a 10.6% lift in investment lending. Non-first home buyers drove the quarterly gains, with the value of loans up 13.4%, compared with a 9.2% rise in first home buyer lending. The value of investor loan commitments remains almost 9% below the level a year ago, however Victoria is showing the second largest concentration of investors (after NSW), comprising 25.2% of mortgage demand in September. First home buyers have been holding above 30% of owner occupier mortgage demand since February this year…
The rebound in new housing credit flows is running in parallel with increased buyer activity and rising residential property values. According to CoreLogic’s Home Value Index, national dwelling values bottomed out in June this year, the same month that housing credit started to rise. The improved credit flows have been supported by APRA’s decision to relax borrower serviceability rules, as well as the lowest mortgage rates since at least the 1950’s.
The flow of new credit is likely to be a key factor monitored by policy makers. Any sign of a material rise in speculative buying activity, higher household debt or a slip in lending standards could be met by another round of macroprudential credit tightening, however at the moment, despite the recent surge in housing credit, investors remains underrepresented in the market and overall credit growth (based on the RBA credit aggregates) remains subdued, implying a strong focus on debt reduction from households. The next round of APRA statistics providing an insight into key metrics covering riskier areas of lending such as the proportion of interest only loans and the proportion of high LVR lending is due out next month. These statistics should provide some further guidance around any regulatory response that could impact on housing credit activity.
As noted earlier this week, the strong bounce in new mortgage growth is a bullish indicator for house prices, especially for Sydney and Melbourne:
Given the RBA’s recent interest rate cuts (with more to come), macro-prudential easing by APRA, and announced first home buyer subsidies, our base case is for the rebound in mortgage credit to continue over the near term, with house prices likely to rise well into 2020.