Finance approvals increase along with values in November…better times ahead?

The volume of housing finance commitments to owner occupiers increased for the eighth consecutive month in November, up 1.4% over the month and 4.6% over the year.  Of course, from a housing market perspective it is important to separate owner occupier commitments for refinances and non-refinances.  Refinances create business for banks and mortgage brokers whereas for real estate agents and those in the construction industry non-refinance commitments are most important.

Housing finance commitments, exluding re-fi’s to owner occupiers, increased by 2.5% over the month and it was the seventh time in the last eight months commitments increased.  Refinance commitments on the other hand fell for the second month in a row, down 2.5% over the month.  It would appear that the surge in refinance activity that has occurred since the middle of 2010 is now abating.  Over the year, non-refinance commitments have increased by just 1.0% while refinances are 12.5% higher.


Despite the fact that there is some positive movement in non-refinance loans, commitments for the construction of new dwellings continues to disappoint, down -0.4% for the month and down -6.3% over the year.  While finance commitments for new construction fell, commitments for the purchase of new dwellings rose by 1.9%, the second successive monthly increase and commitments for the purchase of established dwellings increased by 1.6%, the eight consecutive monthly increase.   While the number of commitments for the purchase of established dwellings has increased by 7.1% over the year, commitments for the purchase of new dwellings has fallen by -11.7%.

The weak housing finance data for new dwellings highlights the challenges developers and builders are facing as the market continues to focus on existing housing supply rather than new housing stock; an issue which probably relates to price sensitivity and a preference for living closer to the city within established neighbourhoods.

Additional data highlights that the number of first home buyer finance commitments is trending higher.   In November, first home buyers accounted for 20% of all housing finance commitments with 10,136 commitments.  The 20% share of the owner occupier market was the highest proportion since February 2010 and the 10,136 commitments was the greatest volume since December 2009.  Just 9 months ago the proportion of first time home buyers in the market was below 16%.

Across individual states, the number of first home buyer commitments was the highest since October 2009 in New South Wales, December 2009 in Queensland, Western Australia and the Australian Capital Territory, January 2010 in Tasmania and September 2010 in the Northern Territory.  The result suggest that the lower interest rate environment and the fact that home values have been falling for most of the last 12 months is encouraging a greater number of first home buyers into the market.

In terms of the value of finance commitments, there has also been an increase over the month with commitments up by 2.1%.  The value of owner occupier commitments rose by 2.2% compared to a 1.8% increase in investor finance commitments.  Total commitments excluding refinances rose by 2.8% over the month, the largest monthly increase since September 2009.  The increase in the value of finance commitments to go along with the increase in volumes and is a welcome development for housing market participants.

Overall, the results highlight that the interest rate cut in November had a positive impact on demand for housing finance.  The impact of the cut has also been reflected by the first positive monthly movement in home values (0.1%) since December 2010 and a 6.3% monthly increase in consumer confidence however, it did nothing for retail trade with figures flat over the month.

From here it will be interesting to see whether the improvement gathers pace as the November rate cut was followed by a further interest rate cut in December and the prospect of more cuts in 2012.  Undoubtedly rate cuts, plus the fact that home values have been in decline for much of 2011 improve housing affordability and make buying a more attractive prospect.  Not to mention that over the past 12 months rental accommodation has become more expensive with capital city rental rates up 5.0% over the year.  However, despite the December rate cut, consumer confidence fell in December by -8.3% which indicates that lower interest rates alone may not be enough to lure consumers back to their old spending patterns.

With consistent reporting of the weak European economy weighing heavily on the attitude of respondents, many felt that the economy and their finances were going to be in a weaker position over the next one to five years.  If these feelings are reflected throughout the community demand for housing finance may remain at low levels despite the recent improvement.

In which direction do you think housing finance is headed from here?

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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One Response to Finance approvals increase along with values in November…better times ahead?

  1. mt January 20, 2012 at 6:52 pm #

    I suspect the Nsw and therefore national figure was greatly distorted by the ceasement of fhb stamp duty concessions in that state.

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