Pandemic drives record mortgage churn

New data released by the NSW Titles Office shows that the number of people taking out and discharging mortgages across NSW has hit an all-time high:

In July, more than 27,000 residential mortgages were discharged from NSW Titles, up 37.1 per cent on July 2020…

It comes at the same time residential mortgages registered on NSW Titles also hit an all-time high. Just shy of 29,000 home loans were recorded in July, up 41 per cent from July 2020…

NSW Land Registry Services director of analytics and insights Jerry Goldfried said the record figures of discharges and registrations of mortgages were driven by very strong residential sales activity and record refinancing volumes.

EY Oceania chief economist Jo Masters said the household sector had built a war-chest of savings, driving strong housing market activity…

“Households have been awash with cash,” Ms Masters said. “Turnover was at a 19-year high and 45 per cent above pre-COVID levels. When you have high levels of turnover, you’re going to have high levels of mortgages discharged and new mortgages.”

Clearly, record low mortgage rates is having three broad impacts on the mortgage market:

  1. Households are using record low mortgage rates and savings to repay existing mortgages.
  2. Households are refinancing to cheaper mortgages.
  3. Households are taking out more new mortgages.

The end result is a record amount of ‘mortgage churn’.

This mortgage churn can be seen clearly in the next chart, which shows explosive growth in new mortgages across Australia, but only moderate growth in the stock of mortgage debt (mortgage credit growth):

Explosive growth in new mortgage, but only moderate growth in mortgage debt.

So while Aussies are taking out mortgages at a record pace, they are also furiously repaying existing mortgages. The upshot is that overall mortgage growth is growing relatively slowly.

Unconventional Economist
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Comments

  1. What is the relationship between these two lines?

    Is the volatile orange line the rate of change in the blue line?

  2. Jumping jack flash

    “The upshot is that overall mortgage growth is growing relatively slowly.”

    That’s actually quite terrible.

    All we really have is debt and debt growth to fuel debt spending and economic growth.
    The money created in the economy when the debt principal is magicked into existence can theoretically be taken back out again with no problems to repay the debt principal. Actually, once the debt is sloshing around in the economy and being used to buy stuff and pay people’s wages, to repay the debt will actually be deflationary, but the important point is that the money will be there to take back out with no harm done. What goes up must come down, boom leads to bust, and all of that.

    But what about the debt’s interest? Where does that come from? We all own enormous amounts of debt, and while it exists the enormous amounts of interest must be paid on it each and every year.

    Ideally the interest payments are created by creating more debt, endlessly, and some of that new debt is used to pay the interest on the previous amount of debt. The more debt that exists, the faster the debt must grow (or interest rates need to be lowered). But if the rate of debt growth isn’t sufficient and interest rates are at zero, then existing money in the economy will need to be redirected away from things like spending on services and imported goods to pay the interest of the debt.

    And that’s when the fun starts.

    • Im pretty sure many people are able to get repayment holidays from the bank under the current situation. Therefore the debt isn’t being paid back so no reduction in the pool of money sloshing around.

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  4. Surprised MacroBusiness has not done a study on concentration risk of new mortgages. It strikes me there is yawning gap between the prudent who are paying down their mortgages, and the fearful/greedy or just plain stupid who are levering to the max to buy houses at any cost.