Australian home loans rise 4.0%m/m in November

Australian home loans rise 4.0%m/m in November
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The number of housing finance approvals issued in November rose 4.0% (JPMorgan 1.3%, consensus 1.0%) after declining a revised 0.5% in October (previously -0.7%). A significant fall in the number of approvals for new home purchases (-7.3%) was offset by a rise in loans for the purchase of established dwellings (+4.9%). Excluding refinancing, home loans were up 1.5%. In value terms, meanwhile, home loan commitments rose 0.5%, fuelled by a rise in owner-occupied lending (+2.0%), while investment lending fell (-2.8%).

Demand for fixed rate loans continued to rise in November. Fixed loans as a percentage of all dwellings financed scaled to its highest level since June 1998, rising to 24% from 21% in October. Demand for fixed loan rates has continued to increase since mid-2007 amid growing speculation that domestic banks would hike rates on standard variable loans (which account for 80% of total loans) in the absence of a rise in the official cash rate. Indeed, domestic banks in early January attempted to ease the current pressure on their spreads by passing on the rise in funding costs to borrowers.

Investors still underpin demand for housing-related finance, and accounted for over one third of total loans in November. These investors, who are primarily existing property owners, will continue to dominate demand for housing related finance for some time. Existing property owners are able to receive significant tax benefits from buying investment property via negative gearing, for example, which enables them to lower their assessable income and enhance their after-tax returns. First home buyers, battling against record low levels of housing affordability, accounted for just 18.3% of total loans in November, slightly less than in the previous month.

Demand for housing finance will likely weaken near term. Not only has the 50bp rise in interest rates since August added around A$100 to monthly repayments on the average A$250,000 mortgage, domestic banks have also increased rates on variable mortgages. Still, while the rise in banks’ variable loan rates has done some of the heavy lifting for the RBA, JPMorgan forecasts that the RBA will hike interest rates again by 25bp to 7% in February 2008. Indeed, next week’s CPI print will be pivotal in determining the near-term interest rate outlook, as will the tone of the FOMC statement on January 30.

The details:

The value of dwelling finance commitments increased 0.5%, owing to rises in the value of owner occupied housing commitments (2.0%), while the value of investment housing commitments fell (-2.8%).

The number of commitments for owner-occupied housing finance increased 4.0%. Excluding refinancing, commitments were up 1.5%.

Trend growth in housing finance fell into in value terms, down 0.3%, but rose in volume terms, up 0.7%.

The number of home loans rose all states and territories, excluding the ACT where the number of commitments fell 0.3%.

ENDS

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