The ABS today released their home lending data to July 2014, which held a number of surprises. The trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.6%. In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions rose 2.7%. In trend terms, the number of commitments for owner occupied housing finance was flat in July 2014. In trend terms, the number of commitments for the purchase of new dwellings rose 1.3%, the number of commitments for the purchase of established dwellings fell 0.1% and the number of commitments for the construction of dwellings fell 0.1%
The state variations in percentage movements of owner occupied lending are worth a quick look. Owner Occupied lending is slowing faster than many predicted, rising only 0.3%.
Most Owner Occupied transactions were for the purchase of established dwellings, though the uplift in construction and the purchase of new dwellings can be seen in the data.
Refinance accounted for a fair chunk of this, as borrowers look to churn into low rates, which probably at the bottom of the cycle.
But the strength of investment housing commitments, which rose 1.2% in the month is pretty amazing.
Looking in more detail, we see that 40% of loans in the month of July were for investment purposes if we include Owner Occupied refinance in the total OO data.
However, if you exclude refinance of existing loans, then a staggering 50% (rounded up) were for investment purposes. This is an absolute record, and represents a 4% uplift from last month. We predicted this uplift in our surveys, highlighting the second wind we saw coming through from investors. The attraction of lifting house prices and low interest rates make property investment for many compelling.
The story for first time buyers is just as concerning, but in the other direction. In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments fell to 12.2% in July 2014 from 13.2% in June 2014.
Again, we need to look at the state data to see whats going on. In NSW, VIC and QLD, the first time buyer percentage of all loans written in the month is rock bottom, in NSW it is sitting at 7%, compared with a peak of 27% in 2011. WA continues to show the most momentum in first time buyers thanks to high migration, then TAS (where there are specific incentives) and SA.
But if you take the average of the slower states and faster states, we see a very stark contrast in the share of first time buyer lending.
This data again highlights the risks in the market, younger buyers excluded, masses of investment loans being written which inflate the banks balance sheets, and increases the exposure of households and banks to the heady current prices, which as we have already highlighted are high on any measure you care to look at. There may be a slight feel good factor for investing households, but we wonder about the sustainability of property at these levels.
