Trends in housing finance show the continued rise of owner occupiers and first home buyers, led by Queensland
The volume of finance secured for the purchase of property experienced a strong rebound in the September quarter, following the initial shock to demand for housing in the first two months of the June quarter.
The latest ABS housing finance data shows the volume of finance lent for the purchase of property increased 5.9% in the month of September, taking the quarterly increase to 20.0%, the highest quarterly growth rate on record. It follows a 10.9% contraction in housing finance through the June quarter, when strict social distancing restrictions, such as a ban on open home inspections and on-site auctions, resulted in a sharp drop in transactions.
Housing finance for the purchase of property totalled $62.7 billion in the September quarter. This is the highest level since the March 2018 quarter, and is just 6.6% below the peak of the lending series in the three months to May 2017.
The uptick is a result of eased social distancing restrictions across the country, which have coincided with historically accommodative monetary policy, which sees mortgage rates at a record low.
Queensland leads growth in housing finance
Of the states and territories, Queensland accounted for most of the increase in lending for the purchase of property. The value of housing finance commitments (excluding refinancing) increased 40.2% in Queensland over the September quarter, accounting for around 31% of the uplift in finance nationally. This was followed by NSW, which contributed 30% to the uplift nationally, as the state saw a 16.7% increase.
Owner occupiers continue to dominate lending
An increase in secured finance (excluding refinancing) to owner occupiers accounted for 85.6% of the uplift in money lent for the purchase of housing in the September quarter. The owner occupier, first home buyer cohort had the highest rate of growth in secured finance, at 24.4% in the quarter. This compares with an uplift of 23.1% for changeover owner-occupiers and an 11.3% rise in investors.
It is worth making the distinction that while first home buyers had the fastest growth in lending over the quarter, the majority of secured finance (53.1%) still went to ‘change over’ owner occupier buyers, such as upsizers and downsizers. A summary of the composition of lending since the onset of COVID-19 in March is compared with the back series average below, which starts in July 2002.
Investor participation in the housing market has been trending down since a national property market downturn in 2017. The retreat of investors and the rise of FHBs has only been exacerbated by COVID-19, as risk in investor-grade stock became elevated, and government stimulus targeted the construction of new homes and grants for FHBs. FHB purchases may be limited late next year, as temporary grants and concessions wind down, and house prices rise off the back of low mortgage rate settings.
In contrast, we could see a lift in investor participation as prospects for capital gains solidify, providing a further incentive for investors, along with more properties returning a positive cash flow thanks to such extremely low interest rates.