RECENT volatility in the stock market has seen investors move back into housing, but housing might not be such a good choice – for long.
According to the latest Australian Bureau of Statistics, housing finance approvals rebounded 3.7% in January, driven by a 1.7% lift in owner occupied commitments and a significant rise in investor finance approvals of 8.3%.
JPMorgan’s economist Helen Kevans said the rise in investment-related home loan demand could be a consequence of recent stock market volatility, which may have encouraged some investors to withdraw funds from the equity market to invest in other avenues, such as property.
Kevans said investors underpinned demand for home loans in January, accounting for 31% of total loans.
“These investors tend to be existing property owners 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.
“In contrast, record low levels of housing affordability meant that first home buyers continue to demand significantly less housing finance, and accounted for just 18% of all loans in January,” she added.
But Kevans said there are downside risks to housing finance demand going forward.
“The RBA has raised interest rates 100bp since August, and several domestic banks have increased rates on variable mortgages by more than, and outside of, the four 25bp rises in the official cash rate. There is more bad news ahead, however.
“While the rise in banks’ home loan rates has done some of the heavy lifting for the RBA, JPMorgan forecasts that the RBA will hike interest rates again in May by 25bp, owing mainly to the deteriorating inflation outlook,” Kevans concluded.
ANZ’s economist Dr Alex Joiner said the proportion of approvals that were fixed has fallen marginally from recent highs.
“However, we anticipate the trend towards fixed rate loans to continue remain strong as borrowers seek some insurance against the prospect of interest rate increases.
“The number of first homebuyers entering the market has remained relatively stable in January. The average size of a first home buyer approval has fallen 7% in the past six-months as this segment scales back expectations in an environment higher interest rates,” he added.
The number of owner occupied housing finance commitments (in trend terms) was mixed across the states.
Commitments increased in
Commitments fell in
Australian Property Journal
