An uplift in buyer activity may be just around the corner

The housing finance data released by the Australian Bureau of Statistics each month generally provides a reasonable insight into how demand is tracking across the Australian housing market.  To put it simply, most people buying a home need to obtain finance.

The trend in housing finance commitments, which is collected by APRA and covers at least 95% of all housing finance commitments across Australia, has been reasonably flat over the first seven months of 2011 after trending down from a recent peak back in September 2009 (the month prior to interest rates commencing their tightening cycle).

The seasonally adjusted value of both owner occupier and investor loans in July 2011 (excluding refinances) was down by about 20% from the September 2009 peak.

Looking at the value of housing commitments by buyer type and purpose highlights some of the trends across the Australian housing market. Broadly, the owner occupier market has remained more active than investors, with the value of owner occupier loans commitments (ex re-fi) down by 1.6% over the 12 months to July and investor loans are down 9.0%.

The recent trends across the various segments of owner occupier lending are all quite similar.  Apart from a substantial increase in home loans being refinanced (the value of housing loans being refinanced was close to 30% higher in July 2011 compared with July 2010), the value of loans for new home construction, the purchase of a new home and the purchase of an established home have all remained reasonably flat over the year to date.

The month to month movements in housing finance has seen loan values improve from the recent lows however.  Owner occupier loans are up 5.9% between March and July of this year, while investor loans are up 3.1% between the April low and July this year.

Investors now equate to 38.2% of the value of all housing finance commitments excluding loans being refinanced.

Investor loans have shown a greater level of decline compared with owner occupiers, which is typically the case when market conditions move out of the growth phase; investor numbers tend to taper as capital growth leaves the market.  Higher yields, more stock to choose from and improved buying power hasn’t been enough to attract a large number of investors back into the market.

With interest rates looking stable and economic growth showing some improvement we may gradually see some improvement in housing finance numbers which ultimately points to an improvement in transaction volumes which were tracking about 17% below the five year average nationally in June.  We are likely to see more new listings enter the market as we move into Spring, so an uptick in buyer activity would be a very welcome event for anyone looking to sell their home.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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9 Responses to An uplift in buyer activity may be just around the corner

  1. Jeff September 8, 2011 at 9:50 pm #

    With unemployment ticking up and consumer sentiment at a two year low I would expect transaction volumes and average sale prices to remain flat. There may be an increase in bargain hunting activity but I don’t see any indicator that would suggest a medium to long term market upswing.There needs to be a significant improvement to affordability before that can happen. Just my two cents.

    • Rebecca September 9, 2011 at 9:54 am #

      I agree completely, the consumer confidence levels are so extortionately low at the moment, what will bring this sudden upward turn about? And housing affordability really is the key issue, if houses drop back to their more ‘proportionate’ value it will aid in bringing the housing market back into balance. I think that there will be more of a drop before the housing market begins to favor buyers. A drop that really is in need!

      • Tim Lawless September 9, 2011 at 10:51 am #

        I agree that conditions are very much dependent on consumer confidence showing an improvement. Consumer sentiment isn’t quite as low as what we say back in 2008 and it took lower interest rates and a government stimulus to turn confidence levels around. It looks like most Australians are now accepting of the fact that the cash rate is likely to be stable at the very least and fixed rates have already come down. The GDP numbers were reasonably strong and of course there has been a subtle improvement in housing finance commitments. The weak labour market stats are likely to counterbalance the positives and undoubtedly consumer confidence has some way to improve.

  2. Brett September 13, 2011 at 5:21 pm #

    At some point the pressure on buying becomes a natural element as buyers either have to up -size, downsize or relocate due to changing personal or business circumstances. The longer they hold off the quicker the change is effected. This will grow even stronger if the Aussie dollar drops or if there is a significant shift of 0.5 or more points in interest rates.

  3. Property Pursuit September 14, 2011 at 11:28 am #

    Early days of course but we’ve experienced a spike in the number of enquiries for our buyers agency services in August and now September. During the previous 8 months our enquiry levels were the lowest we’ve seen in almost 9 years of business. Investor activity in particular has increased with upgrading owner occupiers a close second.

    • Tim Lawless September 14, 2011 at 11:30 am #

      Good news from the coal face, thanks Jason. I notice consumer confidence figures have just come out as well, up 8% over September.

  4. Jeff September 23, 2011 at 7:43 am #

    Hi Tim or anyone else,
    Off topic here re this post but I have a quick question, what do you make of the Bureau of Stats reweighting CPI with a bigger slice for housing? I read a snippet about it on SMH and was wondering if you could put it into plain english.

    • Tim Lawless September 23, 2011 at 8:42 am #

      Hi Jeff, the Australian Bureau of Statistics regularly reviews the CPI – reviews can be either major or minor, and the most recent (the 16th) was a major review in the sense that there were both changes to the weights assigned to each product in the basket of goods as well as an examination of the structure and purpose of the overall CPI index. The weights are estimated based on the Household Expenditure Survey and are updated to reflect any changes in consumer spending patterns.

      The weights have changed for a lot of items in the CPI calculation, however the largest shift was an increase in the weight housing. Housing has historically held the highest weighting, previously accounting for 19.53% of the overall CPI. The new weighting has shown housing to now represent 22.3% of the overall weighting, largely driven by upwards shifts in rents (5.22% up to 6.71%, Electricity (1.63% up to 1.99%), water and sewerage (up 0.8% to 0.9%) and the cost of new dwelling purchases of owner occupiers (7.9% up to 8.67%).

      Based on the previous CPI reading, rents rose by 4.6% over the year to June 2011 and more rental housing is being ‘consumed’. The 4.6% reading is actually slightly below the long run average of around 5-6%, however we can expect rents to continue rising due to the low rate of vacancy across the primary rental markets and fewer active first home buyers.

      The likelihood is that the higher weighting on house rents, together with ongoing increases in rental rates across country, will place further upwards pressure on CPI.

      An important factor in the change of weights is that there will be no revision in the historical CPI series, which means the adjustments are likely to see CPI trend higher creating a serious challenge for the RBA and their inflation targets.

      It’s worthwhile also pointing out that while some categories have seen their weights increase, others have seen a decrease . For example the weighting on automotive fuel fell by 0.13% points due to the lower consumption behaviour that has been evident.

      A full list of the previous and new weightings on CPI can be found here. The changes will take effect in the September quarter release of CPI which is scheduled for 26 October 2011.

      • Jeff September 23, 2011 at 5:42 pm #

        Thanks Tim, much appreciated. I guess that means an increased likelihood of a rates drop in the near future.

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