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Loan values fall again, but first-time borrowings continue to grow

Housing finance continued to decline in May, with the total value of residential loans for new acquisitions falling 2.4% on the prior month, slipping to AUD $16.519 billion. In general, it was Owner-Occupiers who took the bulk of the pain for the month, and that was especially so because First Home Buyers experienced a 0.3% lift in the value of their loans, growing their share of the total market as a consequence.

Compared with a year earlier, total monthly borrowings were 20.9% lower in May 2019, a fact reflected in soft housing sales and still-falling dwelling prices in that month. However, as the chart below indicates, the big decline was experienced for all participants in the market except First Home Buyers, loans to whom fell just 7.5% compared to a year earlier.

On the other side of the borrowing coin, loans to investors slumped a large 27.8% from May 2018 to May 2019. We might say that it is therefore no surprise that the approval of ‘investor grade’ dwellings – 4+ Storey apartments in the main – has slumped over the last year, and indeed, has been on a largely consistent downturn since mid-2017.

fig10

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

We could have a heavy heart about the state of finance and how it reflects onto the total housing market, including dwelling approvals and therefore opportunities for the forestry and wood products sector. But the alternative is to take considerable heart from the recent growth in the total value of loans to First Home Buyers. 

Here at Statistics Count, we encourage some optimism because at 18.4% of the total value of loans in May 2019, we can be pretty much assured that the proportion of new loans to first-timers is higher than that. That is because they tend to borrow less than established borrowers. In May 2019, the average first-timer borrowed almost exactly $50,000 less than the average loan of almost $395,000. We can see this in the chart below, which also shows that the number of their loans rose to 8,822 for the month.

fig11

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

Why is the continued strength of the First Home Buyer lending market important?

Mainly because on average, first-timers are younger and more likely to be forming their household – or at least locking it in – for the longer term. It is new household formation that actually drives new dwelling approvals (other than investors expanding their portfolios of course).

So, when first-timers are closing in on 20% of the value of total loans and are likely to represent a greater proportion of total loans issued, we can be reasonably comfortable there is still a pipeline of work underway. It might be that the resilience – relatively speaking – of free-standing dwelling approvals is linked to this strength of borrowing for first-timers.

Isolated from the other loan formats, we can see below that First Home Buyers are doing pretty well proportionally (the growing red line), and in terms of total loan value, are certainly still doing relatively well, although they remain off their peak.

fig12

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

As is often the case, the froth and bubble in the housing market is not where the real action is. For a while now, the action that really matters has been loans to First Home Buyers. Watch them this spring to see how they fare as recent lending restrictions make their way through the market and some optimism potentially returns to the housing sector. 

Posted Date: August 8, 2019

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