Cheaper airfares; Record home purchases

Housing finance; Airfares

• Airfares: In smoothed terms, discount fares fell by 6.1 per cent over the year. But business class airfares rose at a 6.2 per cent annual rate in January with “restricted economy” fares up 5.8 per cent.
• Home loans: The number of loans (commitments) for people who are buying or building homes to live in (owner-occupiers) rose by 1.8 per cent in November to a 6½-year high. The value of investor home loans rose by 0.7 per cent – the first increase in seven months.
• Record home buying: In November a record $22 billion in home loan commitments was actually advanced to borrowers, up 30.5 per cent over the year.
• Waiting to jump: As at November, a record $26.8 billion of home loans commitments had been made by lenders to home buyers/builders but hadn’t been advanced.

What does it all mean?

• Discount airfares were consistently falling from 2008-2010 and then over 2014. And the good news for travellers is that airfares are falling again. But as a further indication of improved conditions for companies, business class airfares and “restricted economy” airfares are continuing to edge higher. Lower jet fuel prices and modest wage growth is improving the cost environment for airlines. The onus is on the traveller to shop around to encourage airlines to pass on the cost savings in terms of lower fares.
• In real (inflation-adjusted) terms, discount airfares have fallen almost 11 per cent over the past three years and the index of prices is not far from the lowest levels recorded in the 22-year history of the series.
• More Aussies are taking out home loans to build homes or buy homes to live in, which is encouraging result. The lift in loan activity is a sign of confidence in both the state of the job market and the outlook for interest rates. Investor loans also rose in November, ending a six-month period where loans fell almost 20 per cent.
• Each month, lenders commit to provide funds for home purchases. Sometimes the commitments are taken up; other times budding buyers don’t find the home of their dreams. But in November, a record $22 billion was actually advanced to borrowers by lenders to buy or build homes, up 30.5 per cent on a year ago and the biggest annual rise in six years.
• Almost $27 billion in loan commitments has been made but not taken up by borrowers. Overall this suggests that there is a raft of budding buyers assessing opportunities in the market. Now not all the loan commitments will be taken up. In fact in November, $734 million of commitments were cancelled – the most in 16 months. If more loans are cancelled in coming months, this will suggest that buyers are losing interest.

What do the figures show?

Airfares

• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) reports that business class airfares rose by 3.2 per cent in January to stand 7.5 per cent higher than a year ago. In smoothed terms, business class airfares are up 6.2 per cent on the year, the fastest growth pace in nine months.
• “Restricted economy” airfares rose 2.3 per cent in January to stand 7.4 per cent higher than a year ago. In smoothed terms restricted economy fares are up 5.8 per cent over the year. Airfares have been rising at a 6.5 per cent average annual pace for the past two years.
• Discount airfares slumped 11.7 per cent in January to stand 7.4 per cent lower than a year ago. In smoothed terms, discount airfares are down 6.1 per cent on a year ago, the biggest decline in 17 months.
  Housing finance – number
• The number of new owner-occupier housing loans (commitments) rose by 1.8 per cent in November after falling by 0.3 per cent in October. Excluding the refinancing of dwellings, the number of loans was up by 0.9 per cent.
• Loans by owner-occupiers for the construction of homes rose by 2.7 per cent in November; loans to buy newly-erected dwellings fell by 3.5 per cent; and loans for the purchase of established dwellings (excluding refinancing) rose by 1.0 per cent. The number of refinancing transactions rose by 3.5 per cent.

Housing finance – value

• The value of new housing commitments (owner occupier and investment) rose by 1.8 per cent in November – the first increase in three months. Owner-occupier loans rose by 2.4 per cent while investment loans rose by 0.7 per cent – the first increase in seven months.
• The value of loans by owner-occupiers and investors to build new homes rose by 1.5 per cent in November after rising by 14.1 per cent in October. The value of loans to build new homes stood at a 7-month high of $2.84 billion, marginally weaker than the record high of $2.96 billion in December 2014.
  Housing finance – other statistics
• The proportion of first-time buyers in the home loan market fell from 15.0 per cent to 14.9 per cent in November. (However the figures take into account refinancing loans and as such the figures may misrepresent the true situation). Fixed rate loans rose from a 4-year low of 9.1 per cent of all loans in October to a 10-month high of 11.4 per cent in November. And theaverage home loan across Australia stood at $386,100 in November, up 13.2 per cent on a year ago – the fastest pace of growth in a year.
• The value of loan commitments advanced during the month rose by 4.6 per cent in November to a record $22.0 billion. Advanced commitments were up 30.5 per cent on a year ago.Cancelled loan commitments rose to a 16-month high of $734.1 million. And commitments not advanced stood at a record high of $26.8 billion.

What is the importance of the economic data?

• 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 Bureau of Infrastructure, Transport and Regional Economics (BITRE) “provides economic analysis, research and statistics on infrastructure, transport and regional development issues to inform Australian Government policy development and wider community understanding.” The airfares data is useful in gauging inflation trends and providing insights on the aviation sector.

What are the implications for interest rates and investors?

• More people are taking out loans to build new homes – in fact loans are at 7-month highs. The lift in loan activity indicates that activity in home building will remain healthy in coming months.
• Budding home buyers are sitting on almost $27 billion in loan commitments, hoping to put the money to work in the market. The outlook for builders and real estate agents remains favourable together with retailers of household goods.
• The Reserve Bank will be comforted by the more stable conditions in the investor housing market.
• CommSec expects no change to interest rate settings for the foreseeable future.