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Investors remain strong in housing market as first time buyers struggle to enter

Although investor’s share of the total value of housing loans has fallen to 46.0% in June 2016, down from a high of 53.8% in May 2015, investors remain dominant in the housing market, especially when compared with the struggles of first home-buyers to improve their market share. First time buyers’ share of loan values was 11.1% in June 2016, down 0.1% on May 2015, as various alarm bells continue to peel on the domestic housing market.

The prudential constraints applied to lender borrowing (including measures such as lower loan to value ratios requiring higher equity contributions) in mid-2015 had the partial effect of reducing the proportion of total loans taken out by investors, but it didn’t help first home buyers particularly.

As the chart below shows, in money terms, loans to investors (shown in green), fell through the second half of 2015 and early 2016, but have, in recent months, begun to increase again, fuelled it seems by lower interest rates. The question is, for how long?


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

The surge in investor activity in recent months is still well below the peak. As the economist, Callam Pickering wrote at CP – Economics:

“…it’s also important to put recent lending activity in some perspective: despite a couple of strong months investor activity remains well below its peak.”

What is more, as Pickering points out:

“Total mortgage lending has fallen 6.4 per cent from its peak in May last year.”

Pickering appears to be of the view that the 6.4% decline is the important factor in the mortgage market right now. He points to a variety of factors that suggest the market is overdue its decline. These include higher investor activity where the context is that they have greater flexibility around the deployment of their capital and borrowings and weak wages growth.

So, despite being up momentarily thanks to the reduction in interest rates, the trend on investor loans overall is down and likely to stay that way.

What that means is that the market is looking to first-home buyers for any uplift in mortgage lending while the other borrowers are turned down. 

But for a grand dilemma, it is generally agreed that this is one of the cohorts most likely to be impacted by weak wages growth and by underemployment. (For discussion on the potential for Australia to be suffering from under-employment, see the later item in this edition of Statistics Count).

That is a particular problem for the housing market, because again, as Pickering puts it:

“A lack of FHB [first-home buyer] activity creates a problem for the housing market. In order for prices to continue to rise you always need to find new demand (those who believe Australia has a housing bubble would argue that you need to find a greater fool). New demand can come from three sources: owner-occupiers looking to upgrade or downgrade, investors and first home buyers.”

If the reliance is on first-home buyers, the economy might need to be prepared to do something positive to support them.


Posted Date: August 29, 2016

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