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Housing finance commitments rise in February however, the value of commitments is still below its peak

Cameron Kusher    |    International


Housing finance data for February 2016 was released earlier today by the Australian Bureau of Statistics (ABS). According to the data, the total value of housing finance commitments over the month was $32.8 billion which was 2.6% higher over the month and 6.0% higher year-on-year. Although the value of housing finance commitments is higher over the month and year, it is currently -2.7% lower than its peak of $33.7 billion in August 2015.

value of owner occupier and investor

The $32.8 billion worth of housing finance commitments in February 2016 was comprised of $20.9 billion in owner occupier lending and $11.9 billion in investment lending. The value of owner occupier lending was 1.7% higher over the month and 15.5% higher year-on-year however, it is -3.1% lower than its peak of $21.6 billion in December 2015. Investment lending was recorded at $11.9 billion in February which was 4.1% higher over the month and -7.3% lower year-on-year with investment lending was -16.2% lower than the April 2015 peak.

value of owner occupier housing finance

At $21.6 billion, owner occupier housing finance commitments are a much greater proportion of demand than investment. In February 2016 there was $1.8 billion in lending to owner occupiers for construction of dwellings, $1.0 billion to owner occupiers for purchase of new dwellings, $7.1 billion to owner occupiers for refinancing established dwellings and $11.0 billion in owner occupier commitments for the purchase of established dwellings. In February, commitments for the purchase of established dwellings (+7.0%) were the only segment of owner occupier lending to increase with construction of dwellings (-2.5%), purchase of new dwellings (-17.5%) and refinancing of established dwellings (-1.5%) all falling. Year-on-year all segments of owner occupier lending have increased, with construction of dwellings increasing 2.5%, purchase of new up 1.9%, refinancing of established rising 20.3% and purchase of established dwellings up 16.4%. Refinancing and purchase of established dwellings remain the key sources of demand from the owner occupier segment.

value of investement housing finance

The $11.9 billion in lending to investors in February 2016 consisted of $1.1 billion in lending for construction of new dwellings and $10.8 billion in lending for purchase of established housing. Lending for the construction of new dwellings increased 22.5% over the month and was 45.1% higher year-on-year. Lending for the purchase of established housing to investors increased by 2.5% over the month but is -10.7% lower year-on-year. The data shows a significant majority of investors target established housing stock rather than new homes. As a proportion of total lending, investment lending peaked at 43.3% of lending in May 2015 and has fallen to 36.3% which is only slightly higher than the decade average of 35.5% of all housing finance commitments. This highlights the substantial slowdown in borrowing from this market segment since May of last year.

avg new owner occupier

Housing finance data also shows that the average size of a new home loan to owner occupiers is shrinking, having reduced for three consecutive months. In February 2016, the average home loan size was $357,200 which was -4.1% lower over the month but 7.8% higher year-on-year. The average new home loan size is currently at its lowest level since June 2015 and -7.5% lower than its November 2015 peak ($386,300).

number of platform events

The latest data release indicates that although the value of mortgage lending rose, the rate of growth has slowed. The CoreLogic RP Data Mortgage Index shows that in March 2016, mortgage activity rose by 4.1% compared to a 39.0% rise in February (driven by the strong seasonal bounce from January’s low reading). This suggests that housing finance commitments are likely to rise again in March albeit the pace of growth will slow.

With the pace of lending growth slowing and expected to slow further over the coming months, it is no wonder we are seeing the rate of home value growth also slow. The substantial ramp up in housing finance commitments over recent years has been a key driver of the increases in home values. With the increase in mortgage demand much more moderate coupled with falling average loan sizes it is reasonable to anticipate that the rate of home value growth is set to slow further.

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