Housing Finance

<html><body>
GUEST OBSERVER
Housing finance approvals continue to point to subdued conditions in April with a further softening in investor activity.
The headline figure – the number of owner occupier finance approvals – posted a 1.7 percent rise, more or less in line with expectations (market +2.5 percent, Westpac 2 percent).
The detail was a touch softer including additional data on the value of investor loans.
Ex refinance, the number of new owner occupier loans was up just 1.1 percent, only reversing part of March’s 1.5 percent decline. Overall, the monthly moves are slow and suggest owner occupier demand is drifting around rather than strengthening or weakening.
Within the owner occupier segment, the number of loans of housing-related loans posted a solid rise but are still down significantly on a year ago (+4 percent mth, –5.9 percent yr on a combined basis).
By state, gains were a bit firmer in Vic and Qld but softer in the other main states.
The value of investor loans fell 5 percent to be down over 20 percent yr.
Notably, the weakness in the investor segment outweighed the gain in owner-occupiers with the total value of loans ex refi down 3.7 percent mth, 9.2 percent yr.
Overall, the numbers suggest conditions remained soft in April ahead of the RBA’s May rate cut.
The Bank’s moves should draw more buyers into the market although that will take a few months to become apparent in finance approvals and may continue to be offset by weak investor activity. Details  Owner–occupiers (no.)   1.7%mth, 4.6%yr          
– ex-financing (no.)        1.1%mth, 0.7%yr          
Construction of dwellings (no.)               4.4%mth, –5.6%yr        
Purchase of newly built dwellings (no.)   3.3%mth, –6.7%yr        
Value of loans:             
Owner-occupiers ($bn)   0.1%mth, 7.8%yr          
Investors ($bn)              –5%mth, –20.8%yr       
Total ($bn)                    –1.8%mth, –4.4%yr      
Total ex refi ($bn)          –3.7%mth, –9.2%yr                      
 
Matthew Hassan is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
</body></html>

jchancellor-FAypfDUnLy

Number of owner occupier housing finance approvals up in April: Westpac's Matthew Hassan

<html><body><div class="page" title="Page 1">
<div class="section">
GUEST OBSERVER
The March housing finance approvals came in largely in line with expectations, with essentially steady owner occupier activity and a slight firming in the value of investor loans.
The number of owner occupier finance approvals dipped 0.9 percent mth in line with Westpac’s –1 percent call. Ex refi, the number of ‘new loans’ was a bit softer, down 1.6 percent mth.
Note that the abrupt slowdown in Australia’s housing markets in the second half of last year was mainly driven by a rapid cooling in investor activity following a tightening in credit conditions and rates for investor loans in response to a tightening in prudential guidelines and increased capital targets from regulators. Owner occupier activity was a lot steadier through this period with the number of loans still growth in annual terms, up 3.8 percent yr.
Accordingly there continues to be more focus on the investor lending numbers in the finance approvals data. Although these are not included in the headline figure on the number of approvals, the value of investor loans is recorded and included in estimates of the 'total value' of housing loans. For March the value of investor loans was up 1.5 percent mth after a 3.1 percent gain in February.
Though still down 13 percent yr, investor activity has clearly firmed a touch in early 2016. This may account for the firmer tone in other housing market indicators such as auction clearance rates and price growth. Buyer sentiment lifted following the RBA's rate cut in May but remains at a subdued level compared to previous years. Notably, the pick up in price growth in April appears to have accelerated in May with the month to date figures from CoreLogic RP Data showing surprisingly strong gains.
Elsewhere in the finance approvals detail, construction-related finance approvals were again weak, down 5.9 percent mth and 11.7 percent over the last 3mths. Within this segment, finance approvals for the purchase of newly built dwellings, which covers owner occupier purchases of 'off the plan' units, are down 11.1 percent mth and 23 percent since Dec. Although this could reflect shifts in demand it may also be an indication that buyers of 'off the plan' units more broadly are starting to encounter financing difficulties.
Approvals were a mixed bag by state. Owner occupier approvals ex refi were down across the board but showed slightly bigger falls in NSW (–2.2 percent), Vic (–2.7 percent) and Qld (–2.5 percent). Note that only owner occupier state figures are available at this stage with investor data due out May 13.
Matthew Hassan is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.
</div>
</div></body></html>

Australian housing finance March 2016: Matthew Hassan

<html><body>
<img src="/images/2015/11/NEW_RAMS_LOGO.jpg" alt="">
 
From house hunting to arranging finance, there’s a lot to learn the first time you buy a property. Each step presents challenges and many first-timers fall into the same traps. Here are nine common mistakes and how to avoid them.  
<ul>
<li>Over-stretching your budget – Once you’ve crunched the numbers on how much you can afford, stick to that sum. Don’t over-spend, even on a property you love. </li>
</ul>
<ul>
<li>Rushing in – If you’ve been looking for a while, it can be tempting to compromise on important details because you’re frustrated with searching. But beware of hasty decisions you may regret later. Review your checklist of features and reassess what you really want. </li>
</ul>
<ul>
<li>Getting too picky – At the other end of the spectrum, you should be prepared to make some sacrifices, especially if other features you desire can be added later. </li>
</ul>
<ul>
<li>Failing to research – Get to know how much homes in your search area cost but also learn about future changes that may affect values, such as proposed land rezoning or roads that may be built nearby. Factor this information into your decisions. </li>
</ul>
<ul>
<li>Not getting inspection reports – Structural reports and pest inspection can reveal otherwise hidden problems. Knowing about these upfront allows you to budget accordingly and maybe negotiate on price.</li>
</ul>
<ul>
<li>Forgetting extra costs – In addition to the property price, you may have other costs such as the cost of title searches, solicitor fees, removalists and potentially upfront repairs. Ensure you’ve saved enough to cover those and other charges. </li>
</ul>
<ul>
<li>
Failing to arrange finance – You may think you know how much you can borrow, but does the bank agree? Speak to your lender about seeking pre-approval for a loan early in your house hunting process. This provides comfort that you’ll have the money when you need it. 
</li>
</ul>
<ul>
<li>Job hopping – Recent or frequent job changes may make lenders reluctant to extend finance. If possible, this is something to keep in mind.</li>
</ul>
<ul>
<li>Not reading the fine print – Sale and mortgage contracts are long and complicated but their contents are important. Read them in detail and have a lawyer explain what they mean.</li>
</ul>
Quick tip: To avoid mistakes, plan ahead, do your research and stay focused on your goal.
 
TO FIND OUT HOW RAMS CAN HELP EASE YOU THROUGH THE PROCESS, GET IN TOUCH WITH YOUR LOCAL RAMS HOME LOAN EXPERT OR DROP IN FOR YOUR <a href="https://ad.doubleclick.net/ddm/clk/297184357;124281889;y" target="_blank">FREE FIRST HOME BUYERS’ GUIDE</a>.
For more great property advice and tips on buying your first home from RAMS subscribe to <a href="https://ad.doubleclick.net/ddm/clk/297184562;124283881;q" target="_blank">The Great Australian Dream property series</a>.
For your free Property Observer eBook from RAMS, 12 tips for first-time buyers, covering everything you need to know when it comes to purchasing property, <a href="component/content/article?id=48727" target="_blank">click here</a>.
Disclaimer: Information in this material is general and does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. You should also obtain independent professional advice relevant to your financial circumstances.
</body></html>

First-time mistakes to avoid

<html><body><div class="page" title="Page 1">
<div class="section">
<div class="layoutArea">
<div class="column">
GUEST OBSERVER
The value of housing finance commitments stabilised in August following a sharp fall the previous month. Recent strength in investor finance appears to be waning. 
<a href="/images/2016/10/11/Screen%20Shot%202016-10-11%20at%202.33.49%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/11/Screen%20Shot%202016-10-11%20at%202.33.49%20PM.png" alt="">
Housing finance commitments for the construction of new houses weakened sharply, suggesting building approvals may be nearing a peak. Overall though, the level of activity in the housing market is strong and there is a significant backlog of work.
The value of housing finance commitments stabilised in August, rising by 0.2 percent m/m in August following a 2.7 percent m/m fall the previous month.
In annual terms, the value of housing finance continues to fall, with commitments down 6.3 percent y/y in August. The number of housing finance commitments fell by 3 percent m/m.
<a href="/images/2016/10/11/Screen%20Shot%202016-10-11%20at%202.35.43%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/11/Screen%20Shot%202016-10-11%20at%202.35.43%20PM.png" alt="">
Owner-occupied finance excluding refinancing rose by 0.2 percent m/m, with a larger 0.6 percent m/m increase for upgraders. Finance for first home buyers fell by 1.2 percent m/m.
Interestingly, investor finance growth moderated for the second consecutive month, rising by 0.1 percent m/m in August compared with 0.5% m/m in July.
In trend terms, housing finance broadly appears to be rolling over (see Figure 1). This is surprising given that other data flow on the housing market has been somewhat stronger. House prices have continued to rise, auction clearance rates remain elevated, and building approvals are around record levels.
Tighter surveyed lending conditions for developers are continuing to weigh on finance for construction of new housing, which fell sharply in August, suggesting building approvals may be close to peaking (see Figure 2).
<a href="/images/2016/10/11/Screen%20Shot%202016-10-11%20at%202.37.49%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/11/Screen%20Shot%202016-10-11%20at%202.37.49%20PM.png" alt="">
That said, there is a record backlog of work which will continue to support growth in construction activity over the coming year. 
<div class="page" title="Page 1">
<div class="section">
<div class="layoutArea">
<div class="column">
Jo Masters is senior economist, ANZ and can be contacted <a href="https://www.anz.com/personal/" target="_blank">here</a>.
</div>
</div>
</div>
</div>
</div>
</div>
</div>
</div></body></html>

Value of housing finance commitments stabilised in August: ANZ's Jo Masters

<html><body>
<img src="https://counter.theconversation.edu.au/content/67056/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The Reserve Bank of Australia (RBA) sees housing finance as a smaller danger than in the past, judging by its latest Financial Stability Review, but we aren’t back to happy days just yet.
A number of economic indicators still show there’s cause for concern in the property market. 
The review does acknowledge some problems in the apartment markets in Brisbane and Melbourne, but it sees major threats to the resilience of the Australian financial system overseas: examples are the rising debt levels in China, the low performance of European banks, the Brexit, and the impact of low milk prices on New Zealand farmers (with a possible feedback effect to Australian banks).
The review highlights Australian banks’ stronger capital buffers and compliance with toughened prudential standards from the Australian Prudential Regulation Authority (APRA). Because house price growth has moderated and mortgage borrowers are substantially ahead of their scheduled payments, the risk from mortgage lending is somewhat lower. 
However, it’s surprising that the review doesn’t stress some aspects that are obvious.
What the RBA didn’t say
Although Australia hasn’t experienced the type of shock to the economy the United States did, due to the sub-prime mortgage crisis, there is substantial risk due to a large portion of mortgage loans being subject to interest-only periods of typically five years. Research for US home equity lines of credit finds the risk that people won’t be able to pay mortgage expenses increases substantially towards the end of flexible repayment terms, in particular during times of increasing lending standards.
Mortgage borrowers often have the expectation that they are able to refinance at the end of the interest-only term into a similar loan with a new interest-only period. However, this rollover is not possible in economic downturns when banks suddenly tighten their lending standards and and are likely to cut refinancing. 
The RBA’s review shows that Australian banks have tightened their lending standards and have room for further tightening, but currently we do not see larger impacts on delinquencies. Current rates of people not being able to make their mortgage payments are low but may quickly change in an economic downturn. It’s also difficult to forecast whether this will change judging by medium- to long-term trends. 
There might be other reasons why people might struggle to make their mortgage repayments. We have seen central banks following the European and US central banks in lowering interest rates and markets are expecting a reversal in the future. As most mortgage loans in Australia are at a floating rate this would imply that the largest relative payment increase will be to interest-only loans, should the RBA follow these leads. 
In addition to this, Australia continues to enjoy low unemployment rates. This may change and lower the average income levels, putting more stress on people’s ability to pay mortgage loans.
Other risk factors at play in the property market
House prices continue to grow at annualised rates of approximately 10.2% and 9% in the largest cities Sydney and Melbourne. Housing price growth has slowed down, but prices are still increasing and new mortgages are underwritten based on house prices that are disengaged with national income levels. The growth rate continues to be above the historic averages and other developed economies that have experienced similar rate cuts.
Banks have relatively reduced interest only loans and high loan to valuation ratio (LVR) style loans. However, it is also clear that origins of high risk mortgages continue at relative high levels. 
Australian Prudential Regulation, new mortgage loans for ADIs with greater than $1 bn of term loans
The fraction of interest-only loans has come down from 44% in December 2014 to 36% in March 2016. While this is a noticable decrease, more than a third of loans continue to be interest-only.
The RBA’s review argues that Australian mortgage borrowers are on average approximately two and a half years ahead of the scheduled payments. This argument does not take interest-only loans into account. 
Prepayments are generally made into offset accounts which include a redraw facility and are generally used when new properties are used. In other words, these prepayments may be quickly depleted to increase leverage but also in situations when borrowers have difficulties making payments. 
Dominance of housing loans on bank books
The largest problem of Australian banks remains the dominance of housing loans on bank books. Approximately 60% of total loans are for residential properties, and 36% of loans are business loans dominated by commercial real estate loans and loans to small and medium sized companies, which are often backed by the real estate of the business owner. 
This over-concentration is the Achilles’ heel of the Australian banking system and hard to protect against. It’s a reflection of demand for bank loans in Australia and alternatives to bank lending available to large firms. 
International financial markets may provide a solution, allowing banks to diversify and risk transfer via asset risk swaps. Unfortunately, these solutions have not been explored much in the past . The reluctance to do this is mostly based on the poor performance of overseas assets during the global financial crisis.
The RBA’s review further discusses the achievements under the Basel Committee on Banking Supervision to limit the systemic risk of financial institutions via increased regulation and higher capital buffers. The review further notes that no Australian bank is of global systemic importance. 
However this is not a reason for complacency as the failure of one of the largest Australian banks would lead to a great shock to the Australian economy. A further concentration in the banking industry would make bank products more expensive than they would be in a competitive system.
Harry Scheule is associate professor, Finance, UTS Business School, University of Technology Sydney and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/harry-scheule-3573" target="_blank">here</a>.
</body></html>

The risks in Australia’s housing market shouldn’t be downplayed

How are Australia’s states and territories performing? CommSec's Craig James

<html><body>
GUEST OBSERVER
How are Australia’s states and territories performing? Each quarter CommSec attempts to find out by analysing eight key indicators: economic growth; retail spending; equipment investment; unemployment; construction work done; population growth; housing finance and dwelling commencements.
Just as the Reserve Bank uses long-term averages to determine the level of ‘normal’ interest rates; we have done the same with key economic indicators. For each state and territory, latest readings for the key indicators were compared with decade averages – that is, against the ‘normal’ performance.
NSW has retained top spot as the best performing economy, edging a little further ahead of Victoria. Both states are maintaining a healthy lead over the other states and territories.
The big change over the past quarter has been the lift of the ACT economy to equal third position alongside the Northern Territory. Western Australia has dropped from fourth to fifth. But there is little to separate the ACT and the Northern Territory in the second grouping of economies. In the third grouping of state and territory economies, Queensland is sixth ranked, ahead of the South Australia (seventh) and Tasmania (eighth).
 
 
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.38.04%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.38.04%20AM.png" alt="" width="749" height="620">
NSW has retained its top rankings on population growth, retail trade, dwelling starts and housing finance but now adds unemployment and equipment investment to the list. NSW is still fourth-ranked on construction work done and fifth ranked on economic growth.
Victoria has lost a little ground on NSW but is solidly in second spot on the economic performance rankings. Victoria’s main strengths are population growth and housing finance (second ranked) and dwelling starts and retail trade (third ranked on each indicator).
The Northern Territory remains the third ranked economy, but now shares that position with the other territory – the Australian Capital Territory.
Northern Territory is top ranked on construction work done and is second ranked on economic growth, business investment and unemployment. But the ‘top end’ economy is last ranked on population growth and housing finance.
The ACT economy lifted to equal third courtesy of improved rankings on equipment investment and dwelling starts. The ACT is also third ranked on economic growth, population growth and housing finance. Western Australia is in fifth spot on the economic performance rankings. While top ranked on economic growth, it is bottom ranked on equipment investment and unemployment.
Queensland is now in sixth position on the economic performance table. Best rankings are retail trade and dwelling starts (fourth ranked on each indicator). South Australia remains in seventh spot on the economic performance rankings.
South Australia does best on population growth and housing finance (both fourth ranked) but is seventh or eighth on three indicators. Tasmania remains at the bottom of the Australian economic performance table. Tasmania is third ranked on unemployment (previously first) and weakened from third to sixth on housing finance.
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.42.20%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.42.20%20AM.png" alt="">
Ideally gross state product (GSP) would be used to assess broad economic growth. But the data isn’t available quarterly. Rather, state final demand (household and business spending) is added to exports less imports to act as a proxy for GSP.
Exclusion of the trade sector would provide an incorrect assessment of growth for economies such as Western Australia and Queensland. The only major change in the rankings since the last quarter has been at the top of the leader-board with Western Australia now on top from Northern Territory.
Now while economic growth has slowed in both economies over the past year, the current level of economic activity is still higher than the ‘normal’ or decade-average level of output in percentage terms than the comparison for other economies.
Western Australian output is just under 19 per cent higher than the decade average level of output, from Northern Territory (18.1 per cent), ACT (up 11.6 per cent), Victoria (up 10.8 per cent) and NSW (up 10.1 per cent).
At the other end of the scale, economic activity in Tasmania in the September quarter was just 1.6 per cent above its decade average, while South Australian activity was higher by 8 per cent and Queensland economic activity up by 9.2 per cent.
Victoria now has the fastest annual economic growth rate in the nation, up by 3.4 per cent on a year ago, ahead of ACT with 2.6 per cent and Tasmania (2.3 per cent). By contrast, the Northern Territory economy is down 13.9 per cent on a year ago, while Western Australian economic activity is down 1.6 per cent on a year ago with the Queensland economy down 0.2 per cent on a year ago.
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.44.56%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.44.56%20AM.png" alt="" width="807" height="337">
The measure used was real (inflation-adjusted) retail trade in trend terms with September quarter data the latest available. NSW has held on to the top spot on the retail rankings from Western Australia and Victoria with spending in the September quarter 17.0 per cent above decade-average levels. Solid activity in the housing sector, lower unemployment and higher home prices are supporting spending.
Spending in Western Australia was 14.3 per cent above decade-average levels with a legacy of the mining boom – higher income levels – supporting spending. Spending in Victoria was up 13.8 per cent on the decade average followed by Queensland (up 11.5 per cent).
In fifth spot was the Northern Territory with spending 10.5 per cent above decade averages. Tasmania continues to record the weakest result on retail spending, up 6.8 per cent on the decade average, just below South Australia with 6.9 per cent growth and the ACT with 8.3 per cent growth.
If monthly retail trade was assessed instead to calculate the rankings (November data available), the rankings would be slightly different with Victoria in second spot and South Australia in eighth position. In terms of annual growth of real retail trade, Victoria is strongest, up 4.0 per cent, from NSW, up 3.7 per cent, and South Australia, up 3.6 per cent.
And looking at monthly retail trade, the strongest annual growth is again in Victoria (up 5.8 per cent) from Tasmania (up 4.8 per cent) and NSW (up 4.7 per cent).
NSW is now on top on equipment investment from the Northern Territory, further highlighting the transition in the economy after the resources boom. Equipment spending in the September quarter was just under 5 per cent above ‘normal’ – or decade-average levels.
In the June quarter Northern Territory equipment spending was 20.2 per cent above decade-averages. Now spending is up by just 1.5 per cent. South Australia has held onto third spot, up 1.2 per cent above decade-average levels, followed by ACT (up 0.2 per cent). By contrast, other states and territories had equipment spending below decade averages in the September quarter.
Weakest was Western Australia (down 30.5 per cent) followed by Tasmania (down 17.0 per cent) and Queensland (down 10.1 per cent). Equipment spending in Victoria was down on decade average levels, but just by 1.5 per cent. On a shorter-run analysis, equipment investment in the September quarter was higher than a year ago in only three of the state and territory economies (last quarter, five states and territories had equipment spending up on a year ago).
Equipment investment is up the most on a year ago in the ACT (up 12.6 per cent), followed by Tasmania (up 7.8 per cent) and Victoria (up 2.7 per cent). By contrast new equipment investment in the Northern Territory was down 30.6 per cent on a year ago while spending in Western Australia was down 30.1 per cent with Queensland down 10.3 per cent. 
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.47.32%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.47.32%20AM.png" alt="" width="757" height="302">
Which state or territory has the strongest job market in the nation? It is not an easy question to answer. The lowest trend unemployment rate in Australia can be found in the Northern Territory at 4.1 per cent from NSW and the ACT at 5.2 per cent. But the ACT jobless rate is over 44 per cent above its decade average. And Northern Territory’s jobless rate is 0.7 per cent above its decade average (“normal”) jobless rate.
However the NSW jobless rate is actually 2.4 per cent lower than the decade average. In further comparing current jobless rates in each state and territory with their respective decade averages, Tasmania follows NSW and Northern Territory, its 6.6 per cent jobless rate is 8.7 per cent above the decade average.
In Victoria, unemployment stands at 5.9 per cent, up 9.0 per cent on its decade average of 5.4 per cent. At the other end of the scale is Western Australia. Trend unemployment stands at 6.4 per cent, 47.8 per cent higher than the 4.3 per cent ‘normal’ or decade-average. Next weakest is the ACT – as noted above the trend unemployment rate is 44.4 per cent above the decade average.
South Australia’s jobless rate is 28 per cent above the decade average, while Queensland is mid pack – its 5.9 per cent jobless rate is up 12.5 per cent on the ‘normal’ level. Unemployment rates in NSW, Victoria, Queensland, South Australia and Northern Territory have all eased in trend terms in the past three months.
The measure used for analysis was the total real value of residential, commercial and engineering work actually completed in trend terms in the September quarter. In five of the states and territories, construction work was higher than decade averages.
Leading the way was the Northern Territory with construction work done almost 117 per cent above its decade average with activity associated with the gas projects providing solid support. Next strongest was Western Australia (up 35.1 per cent) while construction work done in Victoria was up by 17.2 per cent on ‘normal’ levels in trend terms. Construction work done in both economies was well up on a year ago in the September quarter.
NSW is fourth ranked with construction work 7.2 per cent above decade averages. Tasmania is fifth ranked with construction work 0.7 per cent above ‘normal’ levels. In Queensland, overall new construction work completed in the September quarter was almost 19 per cent below the decade average, weaker than the 11 per cent decline recorded in the June quarter.
Next weakest to Queensland was the ACT where construction work was 12.1 per cent below decade averages, followed by South Australia (down 1.6 per cent). In terms of annual growth rates, Western Australian construction work done in the September quarter was up 13.3 per cent on a year ago, followed by Victoria, up 11.5 per cent. Other economies had construction work lower than a year ago, led by Queensland, down by 30.5 per cent – the biggest annual decline in records going back over 26 years.
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.49.58%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.49.58%20AM.png" alt="" width="698" height="299">
The measure used was the trend number of dwelling commencements (starts) with the comparison made to the decade-average level of starts. Starts are driven in part by population growth and housing finance and can affect retail trade, unemployment and overall economic growth. However any over-building or under-building in previous years can affect the current level of starts.
The outlook for home building remains strong over the next year but a slowdown can be expected later in 2016 as the surge in the supply of new homes meets pent-up demand. The slowdown in population growth will also restrain future home building. NSW retains the mantle of the strongest in the nation for new home construction, with starts almost 72 per cent above decade averages.
In addition, in the September quarter the number of dwellings started was 24.6 per cent higher than a year earlier. The ACT has replaced Victoria in second spot, with starts 48.2 per cent above decade averages. Victorian starts are 38.3 per cent above decade averages and Queensland starts are up 26.7 per cent. At the other end of the scale, South Australian dwelling starts were 3.0 per cent below decade averages.
And in the September quarter starts were down 2.6 per cent on a year earlier. Next weakest was Northern Territory (down 2.8 per cent from decade highs) from Tasmania (up 12.6 per cent on the decade average) and Western Australia (up 16.1 per cent on the decade average). In terms of annual growth, the ACT is strongest with dwelling starts at record highs in trend terms in the September quarter, up 44.3 per cent on a year ago.
In the June quarter, NSW was alone in recording a fall in real wages. However in the September quarter, wage growth in all states and territories was above that of consumer prices.
Strongest real wage growth was again recorded in the Northern Territory with wages 2.0 percentage points (pp) higher than consumer prices. Wage growth was second highest in the nation while inflation was the lowest. Real wage growth was next highest in three economies – Victoria, South Australia and Tasmania – with wages 1.2pp above consumer prices (inflation).
At the other end of the scale, NSW wage growth of 2.2 per cent was just above the 1.9 per cent annual growth of prices. Despite that, retail spending still remains firm in NSW. Real wages remains only modestly positive in Queensland (+0.5pp) and Western Australia (+0.9pp).
Turning to home prices, in December four of the capital cities had positive annual growth of home prices. Back in June, similarly four of Australia’s capital cities had home prices higher than a year earlier. Strongest growth in home prices was in Sydney (up 11.5 per cent) followed by Melbourne (up 11.2 per cent) and then there was a fair gap to the other capital cities. Next strongest were Brisbane and Canberra with prices in both cities up 4.1 per cent on a year ago. Home prices were lower than a year ago in Perth (down 3.7 per cent), Darwin (down 3.6 per cent), Hobart (down 0.7 per cent), and Adelaide (down 0.1 per cent).
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.53.11%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.53.11%20AM.png" alt="">
Currently we look at eight indicators to get the broadest assessment of economic performance. If we added new motor vehicle registrations to the list the only change in the overall economic rankings would be the ACT taking third position on its own.
NSW has a solid grip on the top ranking of economic performance. Unemployment has improved while population growth is above long-term averages, thus providing solid momentum to the economy.
Victoria also still has a strong grip on the second ranking but hasn’t been able to narrow the gap with NSW. Victoria still has the strongest population growth in the nation, underpinning retail and housing activity.
The ACT has been the big improver in the rankings and a sharp lift in dwelling starts is a clear reason for the improvement. Stronger housing activity will support the job market and retail spending over 2016.
The Northern Territory will face challenges in the next few years as key resource projects are either completed or near completion. Slow population growth, weak demand for housing loans and a sharp fall in dwelling starts will constrain economic momentum. Western Australia continues to slip in the performance rankings, having relinquished top spot in October 2014.
Slower population growth and higher unemployment will constrain activity in the housing market. Queensland remains in the third tier of economies alongside South Australia and Tasmania. Encouragingly, however, unemployment has fallen to two-year lows in trend terms.
And dwelling starts have lifted to 7½ year highs. The South Australian job market has improved in the past eight months. If the positive trend continues, then there is scope for an improvement in retail spending. The Tasmanian economy continues to struggle for momentum. In October, trend unemployment had fallen to near 4-year lows. While unemployment has lifted in the past two months, real wage growth remains healthy.
Craig James is chief economist, CommSec and Savanth Sebastian is economist, CommSec. Both can be contacted <a href="https://www.commsec.com.au/" target="_blank">here</a>.
</body></html>

CommSec's State of the States shows NSW as best performing economy: Craig James

Housing finance above decade averages in six states and territories: CommSec's Craig James

<html><body>
<img src="https://counter.theconversation.edu.au/content/57114/count.gif" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The latest Australian housing finance statistics back-up what we already know: the national housing market is starting to cool.
Local housing economists have been pouring water on the notion of a “property bubble” recently, arguing instead that rather than a bubble pop, we are on track for a gradual easing.
And at the aggregate level this is what’s happening. Home loan commitments are continuing to grow. However, this growth is occurring at a rate that has been slowing since the middle of last year.
The seven charts below unpick the latest housing finance figures.
<h2>1. National growth in loans</h2>
<a href="/images/2016/04/18/image-20160415-11420-e5y16g.JPG" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/18/image-20160415-11420-e5y16g.JPG" alt="">
<h4>Data source: ABS Housing Finance, Australia (5609.0), Released 11 April 2016.</h4>
According to data released this week by the ABS, the overall growth in loans for housing increased a modest 1.5% in February (seasonally adjusted terms). Despite a bounce after the slow January month, growth over the past 12 months sits below the last five years' average annual loan commitments. (It’s the same story if we look instead at the value of loans.)
Where the picture gets really interesting is in the change in commitments to loans for the purchase of new dwellings. The number of loans in this category fell over 15% from January into February. Where this was the fastest growing category of housing finance at the end of 2015, it is now the leading area of contraction.
All-in-all this points to a market that, following a recent upsurge in building, is nearing saturation.
<h2>2. Distribution of loans by state</h2>
<a href="/images/2016/04/18/image-20160415-11437-qbrwu7.JPG" target="_blank">Click to enlarge</a>
<h4><img src="/images/2016/04/18/image-20160415-11437-qbrwu7.JPG" alt=""></h4>
<h4>Source data:</h4>
The majority of housing finance is going to property purchases in NSW (30%) and Victoria (28%).
<h2>3. Lending and house prices - National</h2>
<a href="/images/2016/04/18/image-20160415-11426-xqj0gm.JPG" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/18/image-20160415-11426-xqj0gm.JPG" alt="">
<h4>Data source: ABS Housing Finance, Australia (5609.0), Released 11 April 2016; ABS Residential Property Price Indexes (December 2015); CoreLogic Housing Market Update Figures (April 2016)</h4>
Growth in the value of Australian housing loans over time roughly tracks the Australian house price index.
The rapid increase in building, particularly high-density developments in urban growth centres in Sydney and Melbourne, in late-2015 saw loan value growth outpace broader property prices.
As property prices adjust to a new supply-driven equilibrium, easing loan volumes is expected.
<h2>4. Lending and house prices - State-by-state</h2>
<a href="/images/2016/04/18/image-20160415-11420-z4cl5.JPG" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/18/image-20160415-11420-z4cl5.JPG" alt="">
<h4>Source data: ABS Housing Finance, Australia (5609.0), Released 11 April 2016; ABS Residential Property Price Indexes (December 2015); CoreLogic Housing Market Update Figures (April 2016)</h4>
Year-on-year growth in property prices and housing finance by state shows massive diversity. Where Sydney, Melbourne and Hobart (who knew!) have recorded near- and above double digit average property price growth, it is still a struggle for resource-heavy parts of the country.
Brisbane, Perth and Darwin are experiencing the flip-side of the two-speed economy which through the mining boom saw their housing markets pull ahead of Sydney and Melbourne.
<h2>5. Household wealth, income and debt servicing</h2>
<a href="/images/2016/04/18/image-20160415-11461-qtp2ii.JPG" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/18/image-20160415-11461-qtp2ii.JPG" alt="">
<h4>Source data: RBA Household Finances (E2)</h4>
Overall, households are getting more wealth, relative to their income. This is coming from a combination of housing asset and financial asset capital gains.
It comes at a cost, however. Owner-occupier debt as a proportion of income is trending higher. Coupled with an increase in late 2015 of the proportion of income going to mortgage interest repayments, housing affordability issues may soon come into play.
<h2>6. First home owners are missing out</h2>
<h4><a href="/images/2016/04/18/image-20160415-11469-1r1oaly.JPG" target="_blank">Click to enlarge</a></h4>
<img src="/images/2016/04/18/image-20160415-11469-1r1oaly.JPG" alt="">
<h4>Source data: ABS Housing Finance, Australia (5609.0), Released 11 April 2016</h4>
As a proportion of all housing loans, the value of loans going to first-home buyers make up around 15% of the national market, and NSW is the worst place for first-home buyers.
The latest ABS figures show that first-home buyers are making up a smaller and smaller part of the loan market. The proportion of loans to first-home buyers decreased in every state except Tasmania in the beginning of 2016.
First-home owners in NSW make up only 12% of the value of housing finance commitments, the lowest of any state and representing a significant drop-off from a high of around 30% in 2009-10 (after which point the First Home Owners Grant was scaled back).
<h2>7. Big banks are also missing out…</h2>
<a href="/images/2016/04/18/image-20160415-11426-i5j6ep.JPG" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/18/image-20160415-11426-i5j6ep.JPG" alt="">
<h4>Source data: ABS Housing Finance, Australia (5609.0), Release</h4>
Comparing the performance of the banks against non-bank lenders in terms of owner-occupier loan issuance, the traditional banks are lagging.
Banks are feeling the burn doubly: while their grasp of the market is trimmed by a more competitive offering from alternative lenders, the average Australian loan size is also falling.
Smaller loans are partly a response to a national housing market cool-down. It could also be attributed to APRA’s review of lending practices aimed at mitigating risk of property overvaluation introduced in December 2014.
This means the banks have to work harder (and their stock prices appear to be factoring that in!)
Danika Wright is lecturer in Finance, University of Sydney and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/danika-wright-121868" target="_blank">here</a>.
</body></html>

Australia’s housing finance in seven charts: Danika Wright

<html><body><div class="page" title="Page 1">
<div class="section">
<div class="layoutArea">
<div class="column">GUEST OBSERVER</div>
<div class="column"> </div>
<div class="column">The latest housing finance statistics certainly point to some interesting reading. Not only is the size of the average home loan holding at a record high, but it is growing at the fastest pace in 12 years. </div>
<div class="column"> </div>
<div class="column">Over the past year the average home loan grew by 15.4% and is showing no signs of slowing down. Clearly the lift is been fuelled by the low interest rate environment.</div>
<div class="column">
 Policymakers would be encouraged by the lift in owner-occupied loans at the expense of investor finance. The value of investment loans has now fallen for three out of the past four months. Overall the housing finance statistics do not suggest a huge pullback in home landing, although there are signs that activity levels are starting to ease. Over the next few months the tighter bank lending standards will filter through to the housing statistics.
</div>
<div class="column">
 There is no doubt the pullback in investor loans is a positive, and will help to cool property prices but housing is all about demand and supply. Encouragingly loans to build new homes lifted after falling for the prior three months. If there is a substantial pullback in new construction it could be more of a detriment in the longer-term. The situation bears watching but at present the anticipated lift in supply over the coming year coupled with tighter lending  standards should result in home prices easing and rents also falling. 
</div>
<div class="column"> </div>
<div class="column"><a href="/images/2015/10/09/Screen%20Shot%202015-10-09%20at%201.38.50%20PM.png" target="_blank">Click to enlarge</a></div>
<div class="column"><img src="/images/2015/10/09/Screen%20Shot%202015-10-09%20at%201.38.50%20PM.png" alt="" width="732" height="243"></div>
<div class="column">
<div class="page" title="Page 2">
<div class="layoutArea">
<div class="column">
What do the figures show? 
Housing finance
The number of new owner-occupier housing loans (commitments) rose by 2.9% in August. Excluding the refinancing of dwellings, the number of loans was up by 5.2%. Loans by owner-occupiers for the construction of homes rose by 2.4% in August; loans to buy newly-erected dwellings rose by 2.6% and loans for the purchase of established dwellings (excluding refinancing) rose by 6.0%. The number of refinancing transactions fell by 1.5%.
Housing finance - value
The value of new housing commitments (owner occupier and investment) rose by 3.5% in August.
Owner-occupier loans rose by 6.1% while investment loans fell by 0.4%.
The value of loans by owner-occupiers and investors to build new homes rose by 2.8% in August after falling by 0.4% July. The value of loans to build stood at $2.6 billion, easing further from the record high of $2.9 billion in December 2014.
Housing finance – other statistics
The proportion of first-time buyers in the home loan market rose from 15.4% to 15.7%in August. (However the figures take into account refinancing loans and as such the figures may be skewed). Fixed rate loans fell from 9.9% to 9.6% of all loans in August – a four year low. And the average home loan across Australia stood at $371,200 in August, up 15.4% on a year ago – the fastest pace of growth in 12 years. 
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 Reserve Bank will be keeping a close eye on the housing market. The hope would be that while housing plays an integral part in driving the broader growth story, other sectors step up to the plate given the attractive low interest rate environment. In particular policymakers would be hoping that the non-mining business sector looks to invest and create more employment over the coming year.
</div>
<div class="column"> </div>
<div class="column">CommSec expects the Reserve Bank to remain on the interest rate side lines over the coming year. </div>
<div class="column"> </div>
<div class="column"><a href="/images/2015/10/09/Screen%20Shot%202015-10-09%20at%201.40.28%20PM.png" target="_blank">Click to enlarge</a></div>
<div class="column"><img src="/images/2015/10/09/Screen%20Shot%202015-10-09%20at%201.40.28%20PM.png" alt="" width="791" height="273"></div>
<div class="column"> </div>
<div class="column">Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a></div>
</div>
</div>
</div>
</div>
</div>
</div></body></html>

Housing Finance

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Housing Finance

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News