Reflecting the volatility of monthly data, in November, the value of housing loans (excluding refinancing) lifted a modest 1.0% in November 2023, after a larger 7.1% rise in October. However, taking the noise out of the data and looking over the longer twelve-month timeframe, the total value of loans was up an amazing 13.1% compared to a year ago.
The total value of all new loans in November was $27.6 billion. The result was a continuation of the consecutive year-on-year increases experienced since February 2023, the low point in this cycle, when the value of total loans was $22.7 billion. The chart below shows the corner has turned for annualised growth in the value of housing finance.
As we routinely discuss in Statistics Count, house prices appear to follow the money, or at least the lending finance. The September quarter median residential dwelling price for Australia was $925,400, an increase over the previous year of 3.9%.
There is a push-pull factor at play here, but its hard to know whether its finance pushing prices or prices pushing loan values. Overall, the data shows increases in housing finance are fairly closely associated with increasing house prices, as the chart above demonstrates.
The strength of the housing market – at least as it is reflected in prices and loan values – appears to defy logic, given the impact of interest rate rises on affordability. We could think of it as being counter-intuitive, but utterly compelling in a housing market where there is demonstrably insufficient supply. A pure market does not exist, but there is plenty (too much?) of information about dwelling prices and interest rates and that may provide confidence to many when they consider whether it is rational to borrow more. It seems that for the most part, if we can borrow more, the data makes us confident we should.
Michael Bleby, reporting in the Australian Financial Review, suggests house price rises in 2024 might be more moderate than the increases seen in 2023. He quoted Adelaide Timbrell, the ANZ Senior Economist:
“Housing prices in capital cities rose 0.4% in both November and December culminating in 9.3% year on year growth in 2023. We expect housing price growth of around 6% in 2024 reflecting strong auction clearance rates, limited listings and sluggish flow of new residential building approvals and construction.”
With annualised inflation running at 4.1% in 2023 (see earlier in this edition of Stats Count), a painful higher interest rate and loan value at the start of last year is already starting to look satisfactory when the rise in prices (and thus implied value) has been more than double.
It is also interesting to note that most of the new loans written in November were variable interest rate loans. Variable rate loans, including refinancing, were valued at $52.2 billion, up 5.7% for the month. This compares to fixed rate loans, which were valued at $1.1 billion, down 10.1% to the lowest point recorded in the data series.
This is quite different to other jurisdictions, such as the United States of America, where the preference is fixed rate loans, where the fixed rates are available on a long term basis.
Greg Jericho, commenting in the Guardian, noted that:
“…as rates crashed to record lows, more people locked in those rates. But as rates have risen, the number of people taking out fixed-rate loans has plummeted”.
The concern this creates is if households are financing housing in the expectation that interest rates have peaked and a reduction in rates may be on the horizon and specifically within their horizon and that does not transpire, many households could be placed under mortgage stress.
That form of mortgage stress could only deepen should the unthinkable happen and a major shock was to hit domestic or global economies. Like, say, a pandemic.
As Jericho points out, everywhere except the Northern Territory, the average value of a home loan (Nationally, $610,398 in November 2023) has grown faster than wages since March 2021.
On the flipside, and more in accordance with the empirical evidence of the last few decades, reductions in interest rates and loan affordability would see many households sitting on unrealised asset gains, in the form of lower costs to continue securing their higher value property.
From a national perspective, given the number of mortgage holders on variable loans, the economy-wide benefits of any reduction in interest rates would be promptly felt.
Turning attention to First Home Buyers, we can observe they seem to be hanging in the market with their share of all loans by value (green line) remaining relatively steady at 20.3%. They are proving to be resilient and persistent as many younger First ‘Homies’ desperately seek a place of their own, having sheltered in the family nest for longer than desirable.
In November the value of loans to First Home Buyers as owner-occupiers was $5.4 billion and First Home Buyers as investors was $0.4 billion.
Given the strength of the existing home market and the inherent challenges of financing a home move, it is perhaps not surprising that loans for alterations and additions continue to grow. In November, total loans for alternations and additions were valued at $0.9 billion, up 13.5% on the previous month.
If there is a national economic sport in Australia, it is the combined focus on dwellings, loans and the apparent security to be gained from borrowing an ever-increasing amount of money underpinned by uncertain (but pretty secure given the shortages and the evidence of history) long-term asset values.