Housing loans sharply lower as investor lending falls to 1/4

Despite a deep lending dive in May, the total value of loans to households for dwellings (excluding refinancing) was $16.415 billion in May 2020, up 1.8% on a year earlier, but down 11.6% compared with a month earlier. The decline in loans is taking its heaviest toll on investors, whose share of the national loan pool continues to slide.

The headline chart below shows total loan value (the black line) dipping by that 11.6%, and on the blue line that owner-occupiers were down 10.2% to $12.314 billion. However, the steepest decline was recorded for investors (the red line) the value of loans to whom fell 15.6% to $4.101 billion.

Overall, the value of loans is back at the levels of the Hayne Royal Commission into the finance sector. The outcomes may be the same, but the conditions are very different.


Fig. 8

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

Although included in owner-occupier loans, the yellow bars show that the value of loans to first home-buyers fell a pretty steep 10.5% in May, dropping back to $3.710 billion. Their share of total loans was 22.6%, a mid-term peak but still short of the 29.8% achieved in April 2009.

We all love first home buyers. They are mainly forming permanent households for the first time, adding to the stock of those ‘in the market’ and fuelling the residential housing sector long into the future. We could hardly love them more right now, especially when compared with the oft-maligned investors, who represent the other significant point of interest in this analysis.

Investors face a tough time right now.

As Nila Sweeney observed in the Australian Financial Review on 9th July, rental asking prices have been falling sharply (Sydney and Hobart unit/flat/apartment rents were down by record levels in the June quarter). The implication? There is plenty of pre-existing stock in the market – at declining prices – to soak up any additional demand that might arise. The exceptions remain the smaller capital cities where supply and demand balances are more fragile.

For investors who may themselves be income stressed, that means less income, longer periods without tenants, more concessions and ultimately, a tighter lending environment. Lucky interest rates are so low, but unlucky that average wages growth has been so low, for so long.

Worse, as Richard Wakelin wrote in the Australian Financial Review on 8th July:

“Gross rental yields – income from rent divided by property value expressed as a percentage… currently sit at a skinny 3.3 per cent for houses across our capital cities.”

In that context, it is little wonder that Investors’ share of total loan value declined to just 25.0% year-ended May, falling for the sixth successive month, as the chart below shows. As a result, the value of loans to owner-occupiers was 75% for the year-ended May 2020.

Fig. 9

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

In addition to first home buyers, there is a little more good news in the lending market right now. In May, loans for alterations and additions were valued at $2.852 billion, up 1.2% on May 2019.

The chart here shows on the light blue bars that the last two months saw loans for alterations and additions up on the prior year. Some investors perhaps looking after their own digs, for a while?

Whatever the reason, the work is good to have in the fractured building pipeline.

Fig. 10

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

Despite the challenges right now, there is actually improved liquidity in housing finance right now. It’s a quirk of the times, in that household debt is actually a little higher than a year ago, but because of record low interest rates, the ratio of interest on housing debt to disposable income is lower.

We can see this in the index chart here. It demonstrates that pretty much like a year ago, Household debt to disposable income in the March quarter was up just 0.1% on a year earlier at 186.9%. the Housing debt to income ratio was down 0.1% to 142.0% over the same period.

Fig. 11

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

The implication might be that there is a little bit of capacity among borrowers right now. But not much.

Posted Date: July 15, 2020

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