SYDNEY, Australia – First home buyers in Australia were flocking to the real estate market in December according to new data.
Based on the Lending Indicators data released by the Australian Bureau of Statistics (ABS), the number of home loan commitments from first homebuyers went up by around 6.2% in December last year. The rise in the number of FHBs came after the decline in the activity for two consecutive months.
The massive FHB demands in December 2019 led to the rise of the number of FHB lending commitments for the quarter ending December to around 3.6%.
Meanwhile, the entire home loan market experienced rebound momentum based on the ABS data published. The value of housing loans that got approved in December 2019 increased by around 4.4%, valuing over $19.6 billion. The gathered momentum for the market was largely driven by the boost in the value for the owner-occupied home loans, which has seen a 5.2% spike, which can be valued more than $14.2 billion. The recent increase marks the sharpest surge for the market since August 2015. The 2.8% rise, valuing over $5.4 billion in the amount of investor loan commitments, has further boosted the rebound momentum of the home loan market.
Overall, the figure for mortgage volumes in the 2019 calendar year went up by around 14%, primarily boosted by the growth of around 17.9% in the owner-occupied sector.
The strong figures for the home loan market in December 2019 also showed the first annual hike in the number of investor loans in the last two years. The number for investor loans in the 2019 calendar year went up by around 4.9%.
Meanwhile, for the FHB, the rise was quite significant. In December, the recorded total new FHB lending commitments reached to 9,606. Out of all that new FHB commitments, 5.4% were made for the primary purpose of investment. The percentage of new FHB investors has also remained at a steady growth on a month-on-month basis.
Moreover, the FHBs in the owner-occupied sector also increased by 29.7% in December compared to November’s record. The figure reached 30.2% of the entire owner-occupied loan commitments approved in December.
Compared to the previous corresponding quarter, the total number of approved FHB lending commitments increased by around 21.3%. The number of lending commitments approved for the FHBs has also gone up for the period, significantly adding around 38% from the figures recorded for the same period ending December 2018.
According to Eliza Owen, the head of research at CoreLogic, the increase in the number of FHB loan commitments was largely boosted by the increase in home prices as well as the spike in borrowing capacity.
Owen said that the significant rebound in the property prices was primarily triggered when the 30% interest-only cap was removed by the Australian Prudential Regulation Authority (APRA) from investment lending. The market investors being welcomed back in the industry helped with the recent rebound in the market as well.
Moreover, Owen cited that the three rate cuts made by the Reserve Bank of Australia to the official cash rate in 2019 saw a possibly higher borrowing capacity and much cheaper mortgage rates for Australians. She also pointed out that the rate cuts by the reserve bank were also followed on by the adjustments to the serviceability constraints. According to her, all these factors contributed to an increased loan capacity that Australian borrowers were able to access late last year.
However, she didn’t forget to the point that the housing affordability continues to deteriorate. And according to Owen, the value of housing is also currently overtaking people’s incomes. She said that with all these issues, it could be challenging and even unlikely to sustain the rapid rate increase in both the housing prices and housing finance.
ANZ Research also reflected on the recent data from the ABS and said that the growing strength in mortgage demand is largely due to easier credit, lower interest rates, and a consistent increase in price growth, boosting the overall sentiment in the housing market.
The BIS Oxford Economics’ principal economist, Tim Hibbert, also agreed with the sentiment and added that he believes that there will be an even stronger housing credit demand as the year progresses, driven by the bounce back in housing values.
Meanwhile, Philip Lowe, the RBA governor, said during an interview last week that the central bank plans to monitor any developments in the credit market closely. He said that they are going to ensure that the monetary policy strategy of the central bank will not start any disorderly increase in the mortgage market.
He stated that it is important to remember that having too much of a good thing is possible. The RBA governor explained that the central bank is aware of all the risks of having very low interest rates, which encourages too much borrowing, which in turn, spikes disproportionate asset valuations. He further stated that the central bank would keep an eye on borrowing, in particular, very closely.
The statement from the RBA governor came along with the increasing speculation when it comes to the potential entrance of a new wave of macro-prudential efforts from the APRA. It is believed to be offered as a substitute for a reversal in the monetary policy strategy of the central bank.
But like the RBA governor, APRA chairperson Wayne Byres also stated previously that the regulation would carefully keep an eye on the developments in the home lending market, especially with the recent rebound in its activity.
In a statement, Byrnes said that the housing market is one of the areas they are watching keenly, especially with the record-low interest rates, the already soaring household debts, and the signs of a massive rebound in borrowing.
Angela Lillicrap, an HIA economist, also stated that the increase of FHBs in December shows that cycle variations in the housing market. However, she said that it is expected to become subdued as investors and owner-occupiers start to return to the housing market, which would inflate the housing prices.
Lillicrap further stated that any structural modifications in banking regulations would also make it incredibly challenging for FHBs to have access to finance in the future, which would adversely impact the overall home-ownership rate.