Investors storm back into property market

ME’s latest Quarterly Property Sentiment Report shows that “investors are set to jump back into the market in a big way as their positive sentiment jumped to 52 per cent – the highest for any buyer group this quarter”:

“They’re trying to capitalise on the predicted property prices. People are determined to get in now before they’re completely priced out.”

Meanwhile, NAB’s personal banking boss, Rachel Slade, has told The AFR that “we have seen investor interest come back, and we have definitely seen investor applications start to really lift. Some of the uncertainty is coming out of the investor mindset and they are more confident”.

Thus, it appears that we are seeing a repeat of the post-GFC housing boom, whereby First Home Buyers (FHB) initially drove the price growth, only to hand the baton to investors, which kept the boom going.

This situation is illustrated clearly in the next chart which shows FHB mortgage demand briefly overtaking investor demand in early 2009 and again in late 2020 and early 2021, only for investors to then crowd-out FHBs once again:

Mortgage share

Investors are once again crowding-out first home buyers.

Investor mortgage commitments surged 29% over the first three months of 2021 and are now clearly crowding-out FHBs:

Investor mortgage growth is now turbo charged, as illustrated by the delayed sharp 54% lift in investor mortgage commitments in the year to March:

Mortgage growth by component

Investor mortgage growth has rebounded hard.

The investor mortgage boom could also run for a long time, given the value of investor mortgage commitments still remains 22% below their 2015 peak:

Australian mortgage finance commitments

Investor mortgage commitments remain well below peak levels.

The big question mark is whether the regulators will step in to crimp investor lending via macro-prudential tools?

CoreLogic’s latest Monthly chart pack showed a marked deterioration in lending standards in the final quarter of 2020 – something that has likely worsened since:

Australian mortgage lending standards

Mortgage lending standards clearly deteriorated at the end of 2020.

Personally, I can’t see regulators taking any action before next year’s federal election. The Morrison Government wants responsible lending rules axed and has already neutered ASIC. APRA has also hosed down speculation that it will intervene in the housing market.

Let it rip!

Unconventional Economist

Comments

  1. How may changes to division 293 play into this also? In 2017 it was changed so that any income over 230K is effectively taxed at just over 61% where previously it was over 275K.

  2. i feel sick reading this – the only hope there is to smite this sickness is for an external “black swan” event of sufficient scale to wipe this obscene misallocation of capital out of the Australian psyche and return the financial instrument it has become and returned just a “home”

    • Yeah, me too. For me, my house is home. It keeps the rain off my head and allows me to stay warm at night. There’s bedrooms where we can sleep comfortably. I prepare meals for for my family so that we can eat and stay alive. Fundamental things like that.

      The idea that homes have become financialised investments, with the result that many people can’t afford homes, is obscene. I hate what has happened to this country with a deep and abiding passion.

      • kannigetMEMBER

        I made a comment somewhat like this the other day in the lunch room when one of the “proud” fathers of a property investor was bragging about how is daughter made $32K on a property they owned for no more than 18 months.

        My comment was something along the lines that property isnt normally an investment like say the stock market and that obscene market manipulation via NG and CGT discounts made it viable enough that it made prices rise, creating a feedback loop.

        Paraphrasing his “Aggressive” response was basically that it was a legitimate investment because She made $32K…

        I never bothered to ask why She held onto it for such a short period if it was such a solid investment….

        • darklydrawlMEMBER

          I would be tempted to ask if the $32K was pre or post transaction charges….

          • You could even ask if they claimed a first home buyers grant or loan from mum and dad….. sounds like the savvy investor story has some holes. Why would you sell such a ripping investment?

          • kannigetMEMBER

            I tried to ask this, and he got more aggressive while explaining that it obviously did include those costs…. that’s why I left it…

        • You are questioning someones religion. They know there’s something not right about it, hence the extreme defensiveness. Sort of like scumo and his cult.

    • Cynical snake

      A bigger black swan than a worldwide pandemic? Full blown world war maybe?
      Be careful what you wish for.

      • I agree with your overall sentiment however I wouldn’t call the pandemic a black swan. A pandemic was named by ‘elites’ as one of the greatest threats to the global economy prior to 2020.

    • It is not unique to Australia. Real Estate has been pumped up in many places in the world even outside of the English speaking world. Low interest rates, lighter capital for residential mortgages and the propensity for governments to ensure housing doesn’t fall much if at all has ensured that housing is a go to and expensive investment. One important lesson from the GFC is that the government will not let favoured industries fail.

  3. Except this time (unlike 2008), there was no crash. So I guess FHB’s have pilled into a pre-bust that hasn’t happened and investors are now piling into a pre-boom that’s already happened while everyone thinks this is a post-bust.

  4. TailorTrashMEMBER

    Very sad news ……further erosion of what was once a great idea ….Australia …..paradise lost

    I can see the day when the investors better get those steel grills and bars on the windows like the rich in Asia need .

  5. Whocoodanode! Cut the rates! Unleash monetary chicanery! Weaken the dollar! Watch those exports rip! Eighteen months to a commodity crash and external shock! APRA!

  6. Boom Times Surely Ahead

    You’d spew if you were looking to get into the market but held off.