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Housing approvals peak as credit tightens (for some)

Evidence that housing approvals have peaked appears to be all around us, though is not yet confirmed. There is no doubt, as the first item in Statistics Count demonstrates, that there is a slowing of growth, but whether that continues and declines are experienced is a subject of speculation, at least for the next few months.

In the meantime, attention has turned to the role of tightening credit conditions for most buyers. 

The decision by the major banks to increase loans by up to 20 basis points (0.2%) is a response to increased requirements from the Reserve Bank of Australia (RBA) and Australian Prudential Regulatory Authority (APRA) to reduce their leverage. It will also have the effect of increasing the cost of new loans and repayments and will help cool the heated housing market.

At a macro economic level, that is no bad thing because with interest rates so low and likely to remain low for some time, the levers available to central bankers like the RBA have diminished. APRA’s role as regulator is thus all the more important, when it is required. That its pressure has brought about the desired result will doubtless be cause for relief among the nation’s central banking and financial regulatory mandarins.

Regardless of how it occurs, higher interest rates will almost inevitably slow the domestic housing market and the latest data suggests it is already changing the shape of the market.

Total housing loan approvals (for all purposes) hit AUD27.98 billion in August 2015, the highest ever recorded. However, for the first month in more than a year, owner-occupiers received a larger share of total loans than investors., as the chart below shows.

03

To go straight to the dashboard and take a closer look at the data, click here.

The proportion of loans going to investors fell to 48.5% in August, down from a record 53.5% in May 2015. That is a direct result of the banks and lending institutions responding to pressure from the RBA and APRA and tightening investor credit conditions.

While a greater proportion of loans is now being issued to owner-occupiers, that has not helped first home buyers, whose share of total loans value fell to 10.6% in August, down from 11.1% the prior month. 

It may be that the time of the first home-buyer is still to come. After all, higher interest rates and strong prices do not make for the best of entry conditions. If it does come, it will likely be in new home construction. 

As the chart below shows, loans to owner-occupiers for the construction of new housing increased in August 2015 compared with a year before, but only by 2.0%, to reach AUD21.320 billion. The situation was a little better for owner-occupiers purchasing new houses which was AUD12.077 billion in August 2015 an increase of 4.3% compared with a year earlier. Whilst a sub-set of the loans made to investors there was big boost in new residential construction funded by investors. 

04

To go straight to the dashboard and take a closer look at the data, click here.

Loans to investors, for construction were valued at AUD10.998 billion in August 2015, up a very strong 38.8% on August 2014. Some say that remains a concern. Others say it is providing much needed housing for people who cannot currently afford to buy into the market. Both could be right and of course, the continued funding of investors is fuelling higher housing prices. 

That gets to the heart of the policy driver for increasing interest rates and reducing the heat in the market.

 

Posted Date: October 27, 2015

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