Home loans lift but first home buyer share at record lows

Weekly petrol prices; Housing finance; Job advertisements

• Home loans lift: The number of new owner-occupier housing loans rose by 1.1 per cent in November, the tenth increase in the past 11 months. The value of all home loans rose by 1.7 per cent to record highs.
• First home buyers accounted for just 12.3 per cent of all loans in November, the lowest reading in records going back over 23 years.
• Petrol prices slide: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 4.0 cent per litre to 154.1 cents a litre in the week to January 12.
• Reprieve in sight: The wholesale (terminal gate) petrol price fell by 2.5 cents a litre over the week. CommSec expects fuel prices to fall by 2 cents a litre over the next fortnight
• Job Advertisements fell by 0.7 per cent in December with internet ads down 0.7 per cent and newspaper ads up by 0.4 per cent.

What does it all mean?

• In recent months the housing sector has shown that it is the shining light of the Australian economy. And with interest rates low, population rising and housing affordability still attractive, housing is best placed to take over the leadership role from mining as the nation’s key economic driver. The ongoing lift in housing approvals, rising new home sales, higher house prices will support confidence and provide policymakers with a degree of encouragement.
• But while investors are keen to pick up attractive income-producing assets, first home buyers are still reticent to wade in. Despite some of the most attractive buying conditions in years, the proportion of first home buyer loans is holding at the lowest level on record. There is anecdotal evidence that some first home buyers are being squeezed out by investors given tight housing supply. But the lower numbers of first home buyers also reflects the preference for young people to rent, rather than buy.
• While the rise in overall housing finance is positive, the key is the new home building market and the increase in construction loans is the jewel in the crown. Loans to build new homes have risen for ten out of the past 12 months and are up almost 17 per cent on a year ago. An ongoing lift in construction finance would be beneficial for the broader economy given it is a key forward looking indicator. More homes being built over the medium term will provide additional support to the overall economic growth while also increasing housing supply, and keeping a lid on aggressive house price growth.
• According to the official data, the national petrol price slumped by 3.7 cents last week. And while that may have been partially due to the vagaries of the discounting cycle, motorists would take cheaper prices where available – particularly given that the national average price was holding at 5½-year high.
• And the good new doesn’t end there. Global fuel prices have recorded a sustained fall over the past 10 days, while the Aussie dollar has managed to strengthen modest. The wholesale price has fallen by around 2.5 cents in the past week and it should filter through to domestic pump prices in the next couple of weeks. CommSec expects fuel prices to fall by another 2 cents over the next 7-10 days.
• Interestingly the discounting cycle is nearing the trough (low point) across most capital cities, and should jump sharply higher in the next couple of days. At present motorists in Sydney, Melbourne, Brisbane and Adelaide can buy fuel, with the help of shopper dockets at or below cost price. The bottom line is motorists would be best served filling up the vehicle now, before prices spike higher.

What do the figures show?

Housing Finance:

• The number of new owner-occupier housing loans rose by 1.1 per cent in November, the tenth increase in the past 11 months. Housing finance commitments are up 15.3 per cent on a year ago.
• Excluding the refinancing of dwellings, loans were flat in November.
• The number of loans for the construction of homes rose by 2.3 per cent in November – the 10^th rise in 12 months. The value of construction loans rose by 1.5 per cent in November.
• The number of loans to buy newly-erected dwellings fell by 4.3 per cent and the value of loans rose by 2.7 per cent.
• The number of loans for the purchase of established dwellings excluding refinancing rose by 1.2 per cent and the value of loans were flat in November.
• The number of refinancing transactions rose by 1.7 per cent from record highs while the value of transactions rose by 2.8 per cent.
• The value of new housing commitments (owner occupier and investment) rose by 1.7 per cent in November after a 3.7 per cent increase in October. Owner-occupier loans rose by 1.9 per cent while investment loans rose by 1.5 per cent.
• The proportion of first home buyers in the market fell from 12.6 per cent to a record low of 12.3 per cent in November, and remains well below the long-term average of 20.0 per cent. Fixed rate loans rose from 16.6 per cent to 17.4 per cent of all loans in November. And the average home loan across Australia stood at $319,200 in November, up 4.0 per cent on a year ago.

Petrol prices:

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 4 cents a litre to 154.1 c/l in the week to January 12. The metropolitan price fell by 5.9 c/l to 152.8 c/l, while the regional average price fell by 0.1 c/l to 156.7 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 10.0 cents to 149.6 c/l), Melbourne (down by 5.6 cents to 150.6 c/l), Brisbane (down 5.2 cents to 157.1 c/l), Adelaide (down 9.7 cents to 149.8 c/l), Perth (up 0.7 cents to 155.7 c/l), Darwin (up 0.3 cents to 172.9 c/l), Canberra (fell by 0.4 cents at 158.9 c/l) and Hobart (up 0.3 cents to 162.3 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 145.80 c/l, down 2.5 cents a litre over the week and but still up almost 12 cents since the lows in early November.
• Last week the key Singapore unleaded petrol price fell by US$1.80 (1.5 per cent) to US$117.40 a barrel. But in Australian dollar terms the Singapore gasoline price fell by 87 cents last week to $131.84 a barrel or 82.92 cents a litre.
• Figures from MotorMouth show that petrol prices are at their low point in the discounting cycle across most capital cities currently, before lifting in the next couple of days.

Job advertisements:

• The combined number of internet and newspaper job advertisements, as tracked by ANZ, fell by 0.7 per cent in December to stand 9.1 per cent lower than a year ago. Job ads on the internet eased 0.7 per cent and were down 8.3 per cent on the year. Newspaper ads rose by 0.4 per cent, to be down 27.4 per cent on the year. Newspaper advertisement account for less than 5 per cent of overall job ads.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
• Investors remain keen about putting their money to work in the housing market. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
• The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.

What is the importance of the economic data?

• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
• Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.

What are the implications for interest rates and investors?

• Investors remain keen about putting their money to work in the housing market. Certainly there are plenty of grounds for optimism with rising population, low interest rates, government grants for new construction and tight housing markets.
• The good news is that investors aren’t just buying established dwellings and driving up home prices, but money is being ploughed into new house and apartment developments and adding to housing supply and economic activity more generally. It is clear that home construction will play a key role in driving the broader economy in 2014, taking over from the mining sector. And arguably more industries and regions will feel the benefit of increased home building rather than mining construction.