The Australian Bureau of Statistics (ABS) released its monthly housing finance numbers for October this week which provided some interesting reading. Broadly speaking, the results are split by investment finance commitments and owner occupier commitments. For the owner occupier commitments the ABS publishes data which shows both the volume and value whereas for investment they only publish the value. Although ‘volume’ provides a better measure and is not affected by compositional changes in the type of stock transacting like the ‘value’, both provide a good insight into how the market is performing.
In terms of the volume of owner occupier finance commitments, these increased by 0.7% over the month and by 6.3% over the year. The volume of owner occupier finance commitments increased for the seventh successive month in October.
At RP Data we like to drill down further into the data, looking at the volume of refinance commitments (which create no new transactions) and the volume of non-refinance commitments (more reflective of a property transaction). In October, refinance commitments fell by -1.8% however, they are 17.8% higher over the year. On the other hand, non-refinance commitments rose for the eighth successive month and increased by 2.0% in October. Over the year, total growth in non-refinance commitments has been fairly limited at just 1.2% however, over the last eight months the volume of commitments has increased by 10.6%. The data shows that in recent months non-refinance activity has grown however, over the last 12 months the growth in owner occupier finance commitments has almost entirely been driven by refinancing activity.
If we focus on the total value of housing finance commitments we see that the total value fell by -2.5% over the month with owner occupier finance commitments falling by -1.2% and investment finance commitments down -5.5%. Once we remove the value of refinance commitments, the total value has fallen by a lower -2.4% over the month. Over the past 12 months, the total value of finance commitments have fallen by -0.7% with owner occupier commitments up 3.5% and investment commitments down -9.3%. When refinances are removed from the data, the total value of housing finance commitments have fallen by -5.4%, slightly greater than the -4.0% fall in capital city home values over the same period.
Over the last decade, the total value of housing finance commitments has increased at an average annual rate of 5.9% while over the same period, capital city home values have increased by 6.4% annually. Over the same period, the total value of housing finance commitments excluding refinances have increased at an average annual rate of 4.7%, growing more slowly than both capital city home values and total housing finance commitments.
Clearly the availability and growth in housing finance has contributed to the growth in property values over the past decade. Since the beginning of 2009, capital city home values have increased by a total of 13.2% however, growth in housing credit has been much more limited. The total value of housing finance commitments has increased by a total of just 2.7% since the start of 2009 (almost three years) and when refinances are excluded growth is again much lower at just 0.7%.
Despite the fact that the volume of housing finance has been picking up over recent months it does not look as if there will be a rapid expansion in credit for housing over the coming year. The European sovereign debt problems look as if they will persist at least during the first part of the year, likely resulting in limited credit availability. Australian households are continuing to take a cautious approach saving 10% of their disposable income and the latest results of the Westpac-Melbourne Institute Consumer Confidence Survey show that 34.9% of respondents believed that the wisest place for savings was either a bank, building society or credit union with a further 26.6% believing that paying down debt was the best way to save. Overall, these options accounted for 61.5% of responses.
Clearly the typical consumer knows that their debt levels are high and the responsible thing to do is have less debt. In light of these figures, I would suggest that the growth in housing finance may increase a little further but it will likely take some time until we see the value of housing finance commitments growing at an annual rate of around or in excess of 5% annually oncemore.