Housing loan values lifted 1.6% in March to reach $33.28 billion, up 11.1% on the prior year. The solid position of housing loans confirms the pipeline of work, with approvals typically preceding lending activity.
The first chart shows the value of housing loan approvals by borrower type. The total line in blue shows just how spectacular the borrowings have been in the current boom. Just as significant has been the lending swing from all the growth being driven by Owner Occupiers (red line) to later in the cycle, Investors (green line) re-entering the market. In part, that has been at the expense of the First Home Buyers (purple bars).
For all they have experienced declines, at $5.258 billion in March, First Home Buyers are at least hanging in the Owner Occupier space, in a market that for many is simply too over-heated right now. They accounted for 16.7% of total loans for the month, a gradually declining proportion., as their share of investor value returned to growth at $0.477 billion.
Though beginning to wane, from the peak a year ago, total loans to Owner Occupiers for Construction continue to be relatively strong, hitting $2.341 billion in March, while Owner Occupier for Newly Built lifted sharply to $1.263 billion.
If there is data about which there may be concerns in banks, prudential regulators and among policy makers, it might well be the average loan sizes are not coming down, right at a time when the cost of servicing those loans is on the rise.
The average size of loans in March was $599,922. While that is down from the peak of $617,608 in January, its still high. Very high.
The interest and even fear will be that the interest rate rises push some mortgagees to a point where they have insufficient capacity to cover their interest charge. In a period of high inflation, the risk is borrowers face the current known inflation – already a lagging data set – further cost increases that the entire nation is already feeling, and a higher interest rate.
The questions circulating around household indebtedness will be a major topic for the next two years at least, right across the community.
As Nassim Khadem, wrote recently for ABC On-Line, data from the regulator (APRA), indicates Australians took out about one million new loans over the last two years. Of those, 28% of those loans were to households whose borrowing was six or more times their income and/or have loan-to-value ratios of more than 90 per cent.
These are the borrowers that are considered most vulnerable if there are consecutive rate rises.
It might seem there will be consecutive rate rises, but central bankers are wary of overcooking their monetary policy responses right now. The reason, as Jonathan Shapiro outlined in the Australian Financial Review, monetary policy tightening is occurring in a context where economies are not actually recovering. They are awash with fiscal stimulus, to which the monetary policy is responding.
In turn, the tightening of monetary policy could lead to a rapid decline in inflation, which could reduce the need for extensive interest rate rises. Indebted households, Governments and others will be hoping that is the case.
As with all these matters, time will tell, though that will be little comfort for many right now.
