Banks get a rap over the knuckles from the RBA as the housing boom continues
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Version 0 of 1. The latest housing finance figures show that the housing boom continues but has taken a very different shape. The investors are leaving the market and owner- occupiers are taking the lead. But some things remains the same: the boom is all about Sydney and Melbourne. In the past year it has been tough to gauge just what is happening in the Australian housing market, mostly because the data provided to the ABS by the banks has been shoddy. Related: Housing investors face crackdown as banks exceed regulator's lending limit Last week the deputy governor of the RBA, Phillip Lowe, gave the banks a pretty big ticking off. In a speech on the finance system he talked of the importance of good data for making correct policy decisions, and he noted that in the past nine months the banks had revealed they held a lot more investor loans than they had previously been telling the ABS. In June the ABS reported that banks and other financial institutions had, since June 2012, held $16bn more in investment housing loans than had previously been reported. The latest figures show that since July last year a further $24bn in outstanding investment loans has been revealed. And the issue of poor data wasn’t only limited to investor loans. The banks also discovered that they were under-counting the owner-occupier loans as they had counted some of those loans as investor loans. This has made a big change to how the market is looking. Back in July, when writing of the housing market, I noted that the data suggested owner-occupiers were leaving in droves, whereas the updated data shows the opposite to be the case: Lowe said of the revisions that “these various data problems have reinforced our view that the supervisory focus on investor lending has been entirely appropriate” (essentially the RBA playing the role of parent telling a child that yes, their poor behaviour means they will need to have a babysitter for a few more years). He also noted that “it is disappointing that some lenders’ internal systems have not been up to the task of reporting accurate data on the split between investor and owner-occupied housing loans” (which is the politest way you will ever see anyone tell a group of people to pull their finger out and do their job properly). The latest data tells the story of a housing boom that is continuing, but whereas since the RBA began cutting rates in November 2011 investors had been running at the front of the herd, now it is owner-occupiers: The annual growth of owner-occupier home loans is as strong now as any time since 2009, whereas as investor borrowing growth is almost back to where it was in November 2011. But that doesn’t mean investor lending has become unimportant. As my favourite housing finance graph (mostly because it looks like a shark) shows, investors still make up 48% of new housing finance commitments, whereas back in November 2011 they accounted for just 41.6%: The boom continues to be Sydney-driven, with the annual growth of owner-occupier home loans almost as strong in New South Wales as it has been in the past four years: In NSW the annual growth of owner-occupier home loans is 17% and in Victoria it is 7%, but in the rest of Australia combined, home loans commitments fell 1.6% in the past year. Related: Young families feel housing squeeze as older Australians resist downsizing The provides a continuing dilemma for the RBA, given the interest rates apply across the nation. Low rates are seeing housing in the two major states boom, but the rest of the nation might actually need lower rates to get any similar sort of impetus in the housing market. But the RBA would be loath to do that, as the value of home loan commitments continues to soar above the number: With the average size of owner-occupier mortgages growing annually by 12% – the fastest since 2010 – the RBA will remain somewhat cautious about the rise in housing prices, even if its latest statement suggested the heat had gone out of the market somewhat. What has also gone out of the market is the growth of new homes being built. The latest spurt of home loans has been for established homes, with the number of loans for the construction of owner-occupier houses falling in the past 12 months: This drop in construction is also reflected when investment loans are included – the value of all home loans for the construction of new dwellings fell nearly 3% in the past year: And so the housing boom is in some ways similar and different from how it has been since 2011. It remains primarily in Sydney and Melbourne, but it now is being driven by owner-occupiers. That would please the RBA given the desire of the bank and the financial regulator, Apra, to put a dampener on the growth of investment housing loans. But the boom has also changed from including the building of new homes to now much more focused on people buying established houses. That aspect will less please the RBA, and it will hope that there are enough construction works in the pipeline to keep building activity going for some while lest it have to think about whether or not it risks fuelling house prices further by cutting rates again. |