New mortgage commitments setting the scene for improved buying activity

The number of housing finance commitments continued to improve in December, rising 8.7% over the quarter according to the seasonally adjusted series from the ABS released this week.  The adjusted figures for December were the highest since March 2010; a strong sign that a degree of health is returning to the housing market; at least at a national level.

Looking at the state by state data provides a clearer understanding of where most of the activity is occurring.  New housing finance commitments were up a stunning 19.6% in New South Wales and 13.9% in Western Australia.  The Northern Territory also showed a strong improvement with total commitments up 20.6%, however the series is much more volatile than in the larger states.

Looking specifically at New South Wales, where housing finance commitments comprise just under one third of all commitments nationally (32.9%); up from just 26.9% two years ago.  The very large majority of new commitments are related to established dwellings (90.4%) compared with just 5.5% for the construction of new dwellings and 4.1% for the purchase of new dwellings. The buyer types have swung quite dramatically towards first home buyers, with this segment of the market comprising 26.4% of all owner occupier commitments in December (up from a recent low of 15.8% in September earlier in the year).  In fact, first time buyer finance commitments were up 76.1% in December 2011 compared with December 2010 compared with a 2.4% rise in non first home buyer commitments.  The significant rise of first time buyers highlights the affect of stamp duty exemptions the New South Wales Government provided over the September quarter and in all likelihood we will see the number of first timer loans fall away sharply over the first few months of 2012.

First home buyer’s aside, my view is that we are likely to see housing finance commitments continue to show modest improvements over the coming months.  New mortgages (excluding refi’s) went as low as 28,131 in February 2011 – a level not seen since May 1995.  Mortgage commitments correlate very well with housing sales; and with transaction levels running around 15% below the five year average towards the end of last year, an improvement in selling volumes will be very much welcomed by the industry.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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