Loans for the purchase of newly erected dwelling slumped by 12 per cent in February. Over the past three months loans are down almost 36 per cent – marking the biggest three monthly fall in records going back 32 years.

Overall, the value of housing loans fell by 4.0 per cent in February. The value of loans to owner occupiers was down by 4.8 per cent (number of loans down 5.6 per cent), while the value of investment loans fell by 2.3 per cent.

The proportion of first home buyers in the market fell from 15.2 per cent to 14.9 per cent of all lending in February – the lowest reading in 6½ years. The size of the average home loan was $281,500 – the lowest level in a year.

Even excluding Queensland the number of housing finance commitments have only been lower on one other occasion in the past ten years.

What does it all mean?

• There is no doubt that conditions are tough in the housing sector. Home prices have been easing, albeit modestly, while new construction in the sector has slumped to multi-year lows. Buyers seem to be holding off on purchases in all areas. Loans for the construction of new dwellings – a key forward looking indicator for housing activity – recorded a modest rise, but remained just above the lowest levels in two years. Even more concerning is that loans to purchase newly established dwellings have now slumped by almost 36 per cent in the past three months – marking the biggest three monthly slide in records going back 32 years.
• The natural disasters earlier in the year have no doubt had a negative effect on the housing sector, but rather than being the primary reason for the sharp downturn in housing activity it is more a peripheral issue that has compounded an already weak housing sector. In fact if Queensland is excluded housing finance fell by a much more profound 6.7 per cent in February. Keep in mind the data is for February and the double whammy November rate hike is the clear underlying driver behind the weakness across Australia.
• It is not only owner occupied loans that are falling, with even investor finance on the slide. The slump in investment loans is yet another sign that potential property investors believe that property prices are in for a period of consolidation, and as such can afford to take their time on investment decisions – especially given the Economic Insights Home loans fall to near decade lows likelihood of further rate hikes over the coming year.
• Interestingly the size of the average home loan is at a one year. The higher home loan interest rates have resulted in potential home buyers reworking their sums and being able to afford less. Higher interest rates have also resulted in the proportion of loans taken up by first home buyers falling to the lowest levels in 6½ years. The weakness in dwelling activity will no doubt result in more subdued economic growth in the near term.

What do the figures show?

Housing Finance

• The number of new owner-occupier housing loans fell by 5.6 per cent to 45,393 new commitments. The number of loans is 7.2 per cent lower than a year ago.
• Loans for the construction of homes rose by 1.1 per cent in January to 4,571 – holding just shy of the lowest reading in two years. Loans for the purchase of established dwellings (ex refinancing) fell by 4.0 per cent, while loans for the purchase of newly erected dwelling slumped by 12.0 per cent. The slide follows a 13.6 per cent fall in January and a further 10.2 per cent fall in December. Refinancing commitments were lower by 9.3 per cent.
• The value of new housing commitments (owner occupier and investment) fell by 4.0 per cent in February. Owner occupier loans slumped by 4.8 per cent while investment loans fell by 2.3 per cent.
• Banks accounted for 90.1 per cent of all loans taken out in February up from 89.4 per cent in Janaury.
• The proportion of first home buyers in the market fell from 15.2 per cent to 14.9 per cent of all lending in February – the lowest reading in 6½ years and well below the record high of 28.5 per cent set in May 2009. Fixed rate loans accounted for 7.3 per cent of all loans, down from 8.2 per cent of loans in January. And the average home loan across Australia stood at $281,500, up 1.8 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.

What are the implications for interest rates and investors?

• The rate hikes over the past year are having a profound impact on consumer spending patterns. The housing sector is cooling while businesses continue to highlight weak trading conditions. Given the subdued near term economic conditions it is unlikely that the Reserve Bank will be raising interest rates anytime soon.
• The long term fundamentals for the economy remain sound. The job market remains tight, wage growth is healthy and affordability is tracking sideways. The rebuilding phase after the floods will support housing activity and in turn drive up economic growth in the second half of the year. CommSec doesn’t expect the next rate hike to take place until at least August.
• Our equity analysts retain a BUY recommendation on Adelaide Brighton (ABC) highlighting that “ ABC is one of our preferred stocks within our Australian building materials coverage. Our positive view is underpinned by the recent share market overreaction around contractual lime and cement supply concerns; its significant pipeline of growth opportunities; excess franking credits expected to support a higher payout ratio and potential capital management; strong balance sheet position, suggest considerable valuation upside”.

The post Home loans fall to near decade lows appeared first on AdviserVoice.

• Lending to build new homes recorded a healthy increase in December. Loans for the construction of dwellings rose by 1.0 per cent in December – the fourth consecutive increase.
• Overall, the value of housing loans rose by 2.5 per cent in December with the number of loans to owner occupiers up 2.1 per cent. But the number of home loans is 2.8 per cent lower than a year ago.
• Fixed rate loans accounted for 8.9 per cent of all loans in December – the highest reading in 30 months and up from the recent lows of 3.4 per cent in August.
• Credit card balances are growing at the slowest annual pace in 13 months. The average credit card balance in December was up just 1.9 per cent on a year ago. The average balance recorded the usual seasonal lift in the month, up $34.10 to $3,314.90.
• Petrol prices are tracking sideways. According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol remained unchanged at 26 month highs of 135.2 cents a litre in the week to February 13.

Click here to download document (pdf)

The post Cheaper homes encourage buyers appeared first on AdviserVoice.

• Private sector credit rose by 0.3 per cent in November to stand 3.6 per cent higher than a year ago.
• Housing lending to owner-occupiers stands 7.3 per cent higher than a year ago – the weakest reading in records going back 20 years (since 1990).
• Business credit fell for the fifth straight month, easing 0.2 per cent. Business credit growth stands 2.2 per cent lower than a year ago and has been consistently falling for 17 months.

What does it all mean?

• In 20 years of records, lending to home owners has never grown at a slower pace. It is a remarkable statistic, highlighting the impact that rate hikes have had over 2010. The Reserve Bank was determined to lift rates to “normal” levels but it has come at a cost. Not only have home prices weakened over 2010 but so has construction activity, pointing to weaker times ahead for builders, tradespeople and real estate agents alike.
• Overall the modest uptick in overall lending is encouraging, particularly the pickup in consumer loans. But the old adage of ‘one swallow does not a summer make’ is clearly appropriate. Lending will need to pick up further in coming months to get retailers and other consumer-focussed businesses more excited about the road ahead.
• Businesses are still cutting debt at a faster rate than new loans are being taken out. Overall this is a good reason to remain cautious on the outlook for the economy.

What do the figures show?

Private sector credit

• Private sector credit (lending) rose by 0.3 per cent in November after edging just 0.1 per cent higher in each of the previous three months. Credit growth is up 3.6 per cent on a year ago.
• Housing credit grew by 0.5 per cent with both lending to owner-occupiers and lending to investors up 0.5 per cent. Housing credit is up 7.5 per cent on a year ago – the weakest annual growth in 15 months. Owner occupier housing credit is up 7.3 per cent on a year ago – slowest pace in records going back 20 years. Investor housing lending was up 8.0 per cent on a year ago, down from 8.1 per cent in October.
• Personal credit rose by 0.5 per cent in November after rising by 0.2 per cent in October. Personal credit was up 2.4 per cent over the year – still below the rate of inflation. Business credit fell for the fifth straight month in November, easing by 0.2 per cent. Business credit is down 2.2 per cent on a year ago and has been consistently contracting for the past 17 months.

What is the importance of the economic data?

• Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

What are the implications for interest rates and investors?

• There are glimmers of hope for consumer-focussed businesses in the latest credit data. On balance consumers seem to be taking on a bit more debt, albeit very cautiously. The runs aren’t on the board but it is a trend worth watching.
• The softness in housing lending and home prices gives the Reserve Bank more reason to stay on the interest rate sidelines. We argued that the Bank was slightly too aggressive in lifting rates in 2010 and that is borne out by the weakness in recent economic data.
• Not even in the past recession was lending to home owners this weak – it clearly shows a re-assessment by young Aussies about whether to buy or rent.

The post Slowest housing lending growth on record appeared first on AdviserVoice.