The hous­ing mar­ket is cool­ing. But the af­ford­abil­ity cri­sis isn't over

The Guardian Australia - - Opinion - Greg Jeri­cho

The lat­est hous­ing fi­nance fig­ures from the Bureau of Statis­tics re­leased on Tuesday show that in­vestors con­tinue to flee the hous­ing mar­ket, but owner-oc­cu­piers are also tak­ing out fewer mort­gages than they were a year ago. Even with in­ter­est rates at, or near, record lows, right now the de­ci­sion to buy or in­vest in prop­erty is be­ing put off.

Real estate, per­haps more than any other in­dus­try, is sub­ject to peaks and troughs. And right now it is in a trough.

In April, for a record 15th month straight, the value of mort­gages taken out by in­vestors fell in trend terms. The 2% fall in April was the big­gest monthly fall in that pe­riod, sug­gest­ing that there is still some ways to go be­fore the bot­tom is reached.

Com­bined with a 0.2% fall in the value of owner-oc­cu­pier mort­gages (ex­clud­ing re-fi­nanc­ing) it adds up to a 1% fall in to­tal hous­ing fi­nance – the ninth con­sec­u­tive fall, the long­est run since the global fi­nan­cial cri­sis.

To­tal hous­ing fi­nance in April was 5% below what it was a year ago – led by a 13% fall in in­vestor fi­nanc­ing, while the 2.1% growth in owner oc­cu­pier fi­nance was the weak­est since 2016:

In short, peo­ple are stay­ing out of the hous­ing mar­ket – and mostly this is com­ing from in­vestors.

The sharp drop in in­vestor fi­nance is most ob­vi­ous when you look at the to­tal value of mort­gages taken out each month.

In 2015, the level of in­vest­ment fi­nance ac­tu­ally sur­prised that of owner oc­cu­piers. And even though it dipped once macro­pru­den­tial rules were put in place to limit banks’ ex­po­sure to such spec­u­la­tive lend­ing, by the end of 2016, in­vestor and owner-oc­cu­pier lend­ing was al­most equal. Since then the level of in­vestor fi­nance has fallen by 16% while the value of owner oc­cu­pier lend­ing has grown by 8%:

Es­sen­tially, in­vest­ing in hous­ing isn’t seen as that great of an in­vest­ment at the mo­ment.

But while in­vest­ment prop­erty has been the big story, it would be wrong to think that owner-oc­cu­piers are now rush­ing into the mar­ket.

While the value of mort­gages taken out by owner-oc­cu­piers grew over the past year, the num­ber of such mort­gages has ac­tu­ally fallen:

The num­ber of peo­ple tak­ing out mort­gages to buy a home has now been fall­ing for eight months in trend terms. And the pace of the drop has been quite fast – down 8% in that time.

The fall is pretty uni­form across the na­tion as well. In all states the an­nual growth in the num­ber of owner-oc­cu­pier mort­gages be­ing taken out is lower than it was in Septem­ber last year:

One area how­ever where things ap­pear to be im­prov­ing is for firsthome buy­ers. In April, 17.6% of owner-oc­cu­piers tak­ing out a mort­gage were first-home buy­ers – down slightly on the month, but still well above where it was a year ago:

But here, how­ever, a bit of care needs to be taken be­fore crack­ing open the cham­pagne and declar­ing the prob­lems of hous­ing af­ford­abil­ity for young buy­ers is over.

Over­whelm­ingly, the in­crease in first-home buy­ers comes from Vic­to­ria and New South Wales, where last year the re­spec­tive state govern­ments brought in poli­cies to en­cour­age first-home buy­ers such as cut­ting stamp duty and, in Vic­to­ria, dou­bling the first-home buy­ers grant for homes in re­gional ar­eas:

But while the fig­ures ap­pear to show a strong surge, in real­ity the surge was a very quick one in the month the new poli­cies came into ef­fect, and since then it has ta­pered off quite dra­mat­i­cally:

It would seem that, even with the in­cen­tive, get­ting into the hous­ing mar­ket for first home buy­ers re­mains tough. Af­ter all, de­spite the slow­ing of the hous­ing mar­ket, the average mort­gage size has con­tin­ued to grow:

Even in Syd­ney, where the mar­ket has come off the big­gest peak, the average mort­gage size in April was 7% higher than it was a year ago. Even us­ing the less volatile rolling 12-month average, the average mort­gage is still 3.8% higher than it was a year ago:

So while hous­ing af­ford­abil­ity is per­haps not de­creas­ing as quickly as it was two years ago, it re­mains a tough mar­ket to get into. The hous­ing data sug­gests that for many in­vestors, the dif­fi­culty is not worth the risk given the prospect of poor re­turns ow­ing to low rental price growth and the al­ready high house prices.

And for those look­ing to a buy a home for them­selves, it ap­pears many are hold­ing off, per­haps in the ex­pec­ta­tion that this slow­ing of the mar­ket will lead to a fall in house prices, or per­haps be­cause while prices might be cool­ing now, af­ter nearly five years of run­ning hot while wages growth has been fall­ing, the dam­age has al­ready been done.

Greg Jeri­cho is a Guardian Aus­tralia colum­nist

Pho­to­graph: Glenn Hunt/Getty Im­ages

‘De­spite the slow­ing of the hous­ing mar­ket, the average mort­gage size has con­tin­ued to grow.’

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.