Social Trends – Page 170 – Digital Finance Analytics (DFA) Blog

First Time Loans Now 25% Higher – ABS

The ABS published revised First Time Buyer data to try and iron out some data issues. As a result in November 2014 an extra 1,566 loans (25.8%) were found. This means First Time Buyer Loans were 14.6% of new loans in November, as opposed to 11.6% reported previously. Still a low number, compared with the peak of 30.6% in April 2009.

This does not count First Time Buyers going direct to the investment sector, which we have highlighted before. The ABS explanation follows.

The First Home Owner Grant (FHOG), introduced on 1 July 2000, is a national scheme funded and administered by the states and territories http://www.firsthome.gov.au. Under the scheme, a one-off grant is payable to eligible first home owners. Until October 2012, all first home buyers were eligible for the grant regardless of whether they bought a new or an established home.

Gradually, States and Territories restricted grants to new homes only so that first home buyers who were buying established homes were no longer eligible for the grant. APRA reporting instructions state that a First Home Buyer is a borrower entering the home ownership market for the first time as an owner-occupier. The instructions do not make any distinction between first home buyers who are eligible for a First Home Owner Grant and those who are not. Nonetheless, some lenders’ reporting systems only record first home buyers if they are eligible for a grant which may cause under-reporting of first home buyers.

This under-reporting has progressively impacted on first home buyer statistics from October 2012 as individual States and Territories have changed the eligibility of their First Home Owner Grants, generally to cover only the purchase of newly constructed homes.

States and Territories restricted grants to new homes from different dates – New South Wales and Queensland from October 2012; Victoria from July 2013; the Australian Capital Territory from September 2013; South Australia and Tasmania from July 2014. Loans to first home buyers were therefore underestimated in these States from the dates specified due to some lenders under-reporting. Other lenders have reported correctly throughout. Originally, the drop in loans to first home buyers from October 2012 had been attributed to the change in grant eligibility reducing the affordability for first home buyers and economic conditions, such as rising house prices and the increase in investment loans for housing. However, subsequent analysis and follow-up with lenders has confirmed that the drop was due, at least in part, to under-reporting by some lenders.

CHANGES TO THE ESTIMATION METHOD

The ABS estimates that the number of loans to first home buyers which are currently being reported are approximately 80% of the total number of loans to first home buyers. Total reported monthly home loan commitments are not affected by this under-reporting.

For lenders who are under-reporting loans to first home buyers, the ABS has developed a model to adjust the proportion of first home buyers to total loans for each period of incorrect reporting. The model uses the following components:

a) proportion of first home buyers to total loans for those lenders reporting correctly this period;

b) the proportion of first home buyers to total loans for those lenders reporting incorrectly in the previous period;

c) the proportion of first home buyers to total loans for those lenders reporting correctly in the previous period; and

d) coefficients which determine the relative contribution of the above components to the incorrectly reported proportion.

The coefficients (d) of this model were estimated using data from January 2002 to the month prior to the First Home Owner Grant policy being changed (for example, in NSW the data were from January 2002 to September 2012). All the affected states were analysed separately. When more lenders are able to report correctly, the coefficients and estimates will be updated accordingly.

Application of the adjusted proportion:

The following table is an excerpt from the Housing Finance form (ARF392.0) and will be used to demonstrate the application of the adjusted proportion.

There are no known issues in reporting the total number and value of Fixed rate home loans (9t and 9vt), Secured revolving credit home loans (10t and 10vt) and Other home loans (11t and 11vt). The estimated proportion of first home buyers is applied to the totals for Question 9, Question 10 and Question 11 (9t, 9vt; 10t, 10vt; and 11t, 11vt) respectively to determine the number of first home buyers of the particular loan type. The values for non-first home buyers (i.e. All other loans) are then derived by subtracting the values for first home buyers from the respective totals.

Each lender reports the data by State and Territory, and the proportion for each period is applied to the relevant lenders at the state level. The adjustment is made at the lowest level collected, and is applied to the affected lenders and affected States only. The data are then aggregated to the published States and the national level.

Revisions have been made to the previously published data for the Number, Percentage (%) of all dwellings financed, and Average loan size of First Home Buyers and Non-first home buyers at the national level (columns B to G of Table 560909a). Relevant States’ previously published data have also been revised (Table 560909b) back to when the First Home Owner Grant was first restricted in that State or Territory.

DFA Video Blog On Why Savers Are Getting Crunched

Savers are seeing deposit rates falling according to our household surveys. This short video explains why, and which households in particular are most impacted.

There is bad news for those households with bank deposits. We have already seem a range of deposit repricing initiates by the banks, as they trim their deposit rates. But it is likely to get worst, as international sources of funding get cheaper, and changes to capital requirements are likely to translate to further rate cuts for savers down the track.

We see that Down-Traders hold the largest relative share of savings, up from 32% last year to 38% this year. All other segments are at the same relative values as last year, or at lower levels. This highlights that people looking to sell and move to smaller properties are hold the most significant savings.

In this analysis, savings includes balances in current accounts, call and term deposit accounts, and other liquid savings vehicles, but excludes property, shares are superannuation.

Looking at savings intentions, we see that Down-Traders are expecting to save more next year (55%), and only 5% are expecting to be savings smaller amounts. Investors, Portfolio Investors and Refinancers are more likely to be saving less next year. Want to Buys and First Time Buyers are also quite likely to do the same next year.

There will be a realignment of savings vehicles, thanks to the low bank deposit rates, many savers are looking at shares or property as an alternative. Actually this is introducing more risks into savings portfolios, something which the RBA seems quite happy about. As Glenn Stevens said in his opening remarks to the House of Representatives Standing Committee on Economics last year “The returns to savers for holding safe assets have commensurately declined, and this has clearly prompted substitution towards other assets, including equities and dwellings”.

Our survey suggests that households who are in savings mode will continue to save, and actually lower interest may well encourage even greater saving. Low interest rates are not a path to stimulate spending in the current environment for many.

Finally, I think we see significant inter-generational issues in play. Some say it has always been this way, but the relative wealth distribution seems more skewed in 2014, thanks to rising property values, significant savings by some, and significant borrowing by others.

All of Australia’s Five Major Metropolitan Areas Were Severely Unaffordable – Demographia

The latest housing affordability survey from Demographia has been released. Using data from Q3 2014, they conclude that in Australia, for the 11th year in a row all of Australia’s five major metropolitan areas were severely unaffordable. The latest survey also highlights the divergent trends in Australia’s main urban centres, and other parts of the county. This authoritative report adds further weight to the evidence that the property market is broken.

By way of background, the 11th Annual Demographia International Housing Affordability Survey covers 378 metropolitan markets in nine countries (Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the United Kingdom and the United States). A total of 86 major metropolitan markets — with more than 1,000,000 population — are included, including five of the six largest metropolitan areas in the high income world (Tokyo-Yokohama, New York, Osaka-Kobe-Kyoto, Los Angeles, and London). The Demographia International Housing Affordability Survey rates housing affordability using the “Median Multiple.” The Median Multiple is widely used for evaluating urban markets, and has been recommended by the World Bank and the United Nations and is used by the Joint Center for Housing Studies, Harvard University. Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices from 2.0 to 3.0 times median household incomes. However, in recent decades, house prices have been decoupled from this relationship in a number of markets, such as Vancouver, Sydney, San Francisco, London, Auckland and others. Without exception, these markets have severe land use restrictions (typically “urban containment” policies) that have been associated with higher land prices and in consequence higher house prices (as basic economics would indicate, other things being equal). Here is the rating scale the report uses.

The most affordable major metropolitan markets in 2014 were in the United States, which had a moderately unaffordable rating of 3.6. Canada and Ireland were rated “seriously unaffordable,” with a Median Multiple of 4.3, along with Japan (4.4), the United Kingdom (4.7) and Singapore (5.0). Australia (6.4), New Zealand (8.2) and Hong Kong (17.0) were severely unaffordable.

The most affordable major metropolitan markets were in the United States, with 14 markets rated as “affordable.” Hong Kong’s Median Multiple of 17.0 was the highest recorded (least affordable) in the 11 years of the Demographia International Housing Affordability Survey. Again, Vancouver was second only to Hong Kong, with a Median Multiple of 10.6. Housing affordability in Sydney deteriorated to a Median Multiple of 9.8, which was followed by San Francisco and San Jose (each 9.2). Melbourne had a Median Multiple of 8.7 and London (Greater London Authority) 8.5. Three other markets had Median Multiples of 8.0 or above, including San Diego (8.3), Auckland (8.2) and Los Angeles (8.0). At a more detailed level, Australia had 33 severely unaffordable markets, followed by the United States with 25 and the United Kingdom with 16.

Among the major metropolitan area markets the overall Median Multiple was 6.5. The least affordable market was Sydney, with a Median Multiple of 9.8. This is a substantial increase from last year’s 9.0. This makes Sydney the third least affordable out of the 86 major markets rated in this Survey. Housing affordability also deteriorated in Melbourne, rising to a Median Multiple of 8.7 in 2014 from 8.3 in 2013. Melbourne ranked 6th least affordable of the 86 major markets. Housing affordability deteriorated slightly in Adelaide (from 6.3 to 6.4), Perth (from 6.0 to 6.1) and Brisbane (from 5.8 to 6.0).

Among all markets, Australia’s Median Multiple remained severely unaffordable, at 5.5. After major market Sydney (9.8), Tweed Heads (Queensland) was the least affordable, with a Median Multiple of 9.1. Queensland’s Sunshine Coast ranked third least affordable with a median multiple of 8.3 (following Melbourne, which ranked fourth among all markets in Australia). The fifth least affordable market in Australia was Port Macquarie, with a median multiple of 8.2. There were signs of considerable improvement, however, among the smaller markets of Australia. Gladstone (QLD) achieved a moderately unaffordable rating, with a median multiple of 3.9. Townsville (QLD) and Latrobe (VIC) tied for fourth most affordable market, with a seriously unaffordable Median Multiple of 4.3. For the first time in the 11 years of the Demographia International Housing Affordability Survey, Australia had markets that were rated as affordable. The most affordable market was Karratha, in Western Australia’s Pilbara, with a median multiple of 2.6. Kalgoorlie, also in Western Australia was the second most affordable market, with a median multiple of 2.8. These improvements appear related to resource industry related demand decreases.