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Mortgage Demand Continues To Fade, But Not For First Home Buyers

Author: Cameron Kusher
Source: CoreLogic

Housing finance data for June 2018 was released earlier this week by the Australian Bureau of Statistics (ABS).  The data showed a continuation of the slowing of demand for housing finance with the slowdown being largely driven by investors.

 
In June 2018 the total value of housing finance commitments was recorded at $31.2 billion which was the lowest monthly value of commitments since January 2016.  The weakness in new housing finance commitments is largely being driven by investors however, the value of lending to owner occupiers also fell over the month.

 
The $31.2 billion in housing finance commitments in June 2018 was made up of $20.8 billion worth of commitments to owner occupiers and $10.4 billion worth of commitments to investors.  The $20.8 billion worth of housing finance commitments to owner occupiers was -1.0% lower over the month and the lowest it has been since October 2017.  Although the value of lending to owner occupiers fell as a share of total lending, owner occupiers accounted for 66.8% of commitments over the month, its greatest share since January 2012.  The $10.4 billion worth of housing finance commitments to investors was the lowest monthly value since August 2013 following a -2.7% monthly decline.  In terms of the total value of housing finance commitments in June 2018, it was -29.7% lower than the April 2015 peak of $14.8 billion.

 
One of the key drivers of housing demand over the past year has been the rebound in demand from the first home buyer segment.  In June 2018 there were 9,541 owner occupier first home buyer finance commitments.  The number of first home buyer commitments fell by -7.4% over the month however, as a share of all owner occupier housing finance commitments first home buyers accounted for 18.1% which was their greatest share since October 2012.  

The rebound in demand from first home buyers has largely emanated from NSW and Vic.  Again, although the number of commitments has generally fallen over the past month, as a share of total owner occupier commitments, first home buyers increased.  The 14.8% share of owner occupier commitment to first home buyers in NSW was the highest share since February 2018 and the second highest share on a monthly basis since October 2012.  In Vic first home buyers accounted for 19.6% of owner occupier finance demand, its greatest share since July 2013.  The share of owner occupier housing finance commitments to first home buyers in June 2018 was higher than the same time last year in all states and territories except for Qld and ACT.
 
Along with the increasing share of commitments going to first home buyers, owner occupier first home buyers are increasingly borrowing larger sums to enter into the market.  As at June 2018 the average loan size for a first home buyer was $349,800 which was both an historic high and 10.1% higher year-on-year.  By comparison, the average loan size for a non-first home buyer owner occupier was a higher $406,900 but up by a lower 5.5% over the past year.  

Across the individual states and territories, average first home buyer loan sizes have increased across the board over the past year.  Considering that dwelling values are falling nationally it seems somewhat counter-intuitive that borrowers would need to take out larger loans to enter the market.  In NSW and Vic state governments have removed stamp duty for buyers under certain price thresholds which potentially means they feel they can borrow more for their purchase.  Across the states and territories, the year-on-year changes in average first home buyer loan sizes were: +5.6% in NSW, +12.1% in Vic, +3.5% in Qld, +12.2% in SA, +4.5% in WA, +18.0% in WA, +1.5% in NT and +15.1% in ACT.

With national dwelling values falling, the data highlights that much of the weakening demand for housing is coming from the investor segment.  Keep in mind that over recent year’s investor participation in the market has been at historic high levels.  Owner occupier demand is also easing albeit at a much more moderate pace than investor demand.  While owner occupier demand is easing overall, first home buyer demand has strengthened over the past year.  With dwelling values declining, it is a little concerning that buyers that typically have relatively little equity are entering a declining market and increasingly borrowing larger sums to enter the market.  With value declining they run a significant risk of seeing their overall wealth decline as housing values trend lower.  The data indicates that more seasoned market participants, such as owner occupier upgraders and investors, are taking a more cautious approach to a market which is in the early stages of value decline.  First home buyers might be wise to take a similar approach as housing market conditions continue to ease.


Cameron Kusher
Senior Research Analyst, CoreLogic

Cameron specialises 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 spatial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. 

Date posted: 13 August 2018