Investor home loans slide; Petrol set to rise

Housing finance; Petrol prices

• Home loans: The number of loans (commitments) for budding home owners (owner-occupiers) fell by 0.5 per cent in February. Excluding the refinancing of dwellings, the number of loans was up by 1 per cent.
• The value of loans (owner occupier and investment) fell by 2.7 per cent in February. Owner-occupier loans fell by 0.5 per cent and investment loans fell by 5.9 per cent.
• Petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol 2.3 cents to 124.4 cents a litre in the past week. In fact over the past fortnight the average petrol price has fallen by 5.7 cents a litre – the biggest fortnightly fall in eight months.
• In Australian dollar terms the Singapore unleaded price has risen by almost $10 a barrel in the past fortnight – a result that will filter through to pump prices in coming weeks

What does it all mean?

• The latest data on the housing sector provides for interesting reading. Not only did the number of new loans ease modestly in the February, but the value of all loans also fell. Probably of most interest was the sharp almost 6 per cent slide in the value of investor loans. It may be the first signs of the tight lending restrictions – that have been adopted by the banking sector – are having an impact on investor borrowings. It is still early days but data over the next couple of months will be more telling.
• In addition the average loan size recorded a fall of almost $10,000 in February. In fact over the past two months the average loan balance has fallen by over $22,000 or 6.2 per cent. The recent shift by the banking sector in regards to loan serviceability may have played a part. It should be noted that the average home loan is also influenced by home prices, composition of borrowers and the geographic location of home purchases.
• Overall the Reserve Bank is correct in its view that conditions in the housing market are very mixed. There is a healthy pipeline of work, with owner occupiers likely to dominate home building and buying. The value of loans to build new homes stood at a just under $2.9 billion – easing modestly from the record high of $3.3 billion in March 2016.
• Petrol has certainly been in a steady decline, having fallen for five out of the past six weeks. In fact since peaking in late February pump prices have fallen by 7.2 cents, with the majority of that weakness taking place in the past fortnight. And while it is great news for motorists this may be as good as it gets for motorists. Both the Singapore gasoline price and the local wholesale price have lifted in the past fortnight. In fact in Australian dollar terms the Singapore unleaded price has risen by almost $10 a barrel in the past fortnight – a result that will filter through to pump prices in coming weeks.
• Any further escalation of political and military tensions in the Middle East could raise supply concerns and in turn lift global oil prices. In addition sustained weakness in the Australian dollar will added upward pressure to pump prices.

What do the figures show?

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 2.3 cents to 124.4 cents a litre in the past week. It was the biggest weekly fall in petrol prices in eight months. The metropolitan petrol price fell by 2.8 cents to 122.4 cents per litre while the regional price fell by 1.1 cents to 128.6 cents per litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 4.6 cents to 118.2 c/l), Melbourne (down by 5.9 cents to 123.6 c/l), Brisbane (down by 6.2 cents to 125.5 c/l), Adelaide (down by 8.5 cents to 115.3 c/l), Perth (down by 2.1 cents to 124.0 c/l), Darwin (down by 1.7 cents to 131.8 c/l), Canberra (down by 4.5 cents to 130.3 c/l) and Hobart (down by 0.6 cents to 141.1 c/l).
• The national average Australian price of diesel petrol fell by 0.4 cents to 128.5 cents per litre in the week to April 9. The metropolitan price fell by 0.5 cents to 128.3 c/l, while the regional average price fell by 0.4 cents to 128.6 c/l.
• The national average wholesale (terminal gate) unleaded petrol price stands at 115.7 cents a litre, up by 3.3 cents a litre over the week. The terminal gate diesel price stands at 112.4 cents a litre, up 2.3 cents a litre over the previous week.
• Last week the key Singapore gasoline price rose by US$2.95 or 4.5 per cent to US$69.25 a barrel. In Australian dollar terms the Singapore gasoline price rose by $5.32 a barrel or 6.1 per cent to $92.05 a barrel or 57.89 cents a litre.
• MotorMouth records the following retail prices for capital cities today: Sydney 134.3c; Melbourne 120.5c; Brisbane 123.1c; Adelaide 114.7c; Perth 116.3c; Canberra 129.2c; Darwin 130.4c; Hobart 136.1c.

Housing finance – number

• The number of loans (commitments) for budding home owners (owner-occupiers) fell by 0.5 per cent in February after rising 0.4 per cent in January and rising by 0.4 per cent in December. Excluding the refinancing of dwellings, the number of loans was up by 1 per cent.
• The number of new home loans was down by 2.1 per cent on a year ago (excluding refinancing, up 4.6 per cent).
• Loans by owner-occupiers for the construction of homes rose by 1.7 per cent in February.
• Loans to buy newly-erected dwellings fell by 7.1 per cent.
• Loans for the purchase of established dwellings (excluding refinancing) fell by 0.4 per cent.
• The number of refinancing transactions fell by 3.5 per cent.

Housing finance – value

• The value of new housing commitments (owner occupier and investment) fell by 2.7 per cent in February. Owner-occupier loans fell by 0.5 per cent and investment loans fell by 5.9 per cent.
• The value of loans by owner-occupiers and investors to build new homes fell by 4.7 per cent in February after rising by 9.6 per cent in January and falling 11.6 per cent in December. The value of loans stood at $2.88 billion, down from the record high of $3.32 billion in the year to March 2016.

Housing finance – other statistics

• The proportion of first-time buyers in the home loan market eased from 13.4 per cent to 13.3 per cent in February (long-term average 19.4 per cent).
• The proportion of fixed rate loans eased from 15.2 per cent to 14.1per cent in February. And the average home loan across Australia stood at $353,700 in February, down $9,900 in the month and up 0.4 per cent on a year ago.

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.
• 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.

What are the implications for interest rates and investors?

• Home building does appear to have peaked but the underlying strength and pipeline of works suggests a soft landing lies ahead.
• Regulators will keep a close eye on home loan trends. It is also worth pointing out that non-bank lenders seem to have been more active in the past two months which may provide complications in containing investor exuberance. The risk is that regulators may seek to apply further measures to slow down the pace of investor home loans.