OPINION: AUSTRALIANS borrowed $200 billion last year to buy a residential property.
Now despite the gloomy commentary last year, this volume is just $15 billion or 7% less than the 2007/08 market peak.
The current level of annual residential mortgage borrowings has been consistent for many years. Sadly, ‘steady’ doesn’t generate a headline or a tweet. But steady – and especially at its current healthy level – is much better than the more doom/bust market we experienced in previous decades.
This steady trade highlights that the Australian housing market is far from crashing. Also it questions the ‘unaffordable’ tag which seems to accompany most conversations & writings about our housing markets.
There are three main buyer types – first timers; owner residents buying for the second or subsequent time & investors. Let’s look at the year for these markets.
First home buyers
Australia’s first home buyers borrowed $28 billion for housing during 2012. This represents 14% of the market. At the 2009 peak – for first home buyer action – this segment borrowed just over $52 billion for housing. At that stage they held a 25% market share.
During the middle of last year, every sixth home in Australia was bought by a first timer. By year’s end, first home buyer interest fell to 11% or one in ten house transactions.
Overall, close to 100,000 Australian buyers bought their first home last year. Over 187,000 first home buyers purchased during 2009. On average, 110,000 first home buyers have entered the market each year since official records on such things were kept from 1991.
The average first home mortgage is now $293,000, which is just $12,000 short of the average new non-first buyer mortgage. Prior to the first home buyers grant there was a considerable gap between the size of a first home mortgage & other residential loans.
Second + buyers
This market borrowed $88 billion for houses, buying 450,000 homes, across the country last year.
This level of trade is just 30,000 transactions (or 5%) short of the 2007/08 market peak. Close to $93 billion worth of loans were taken out by second & subsequent owner-residents at that time.
Two out every fifth sale (44%) was to this market segment last year. There is little change – year from year – on this market share.
Investors
This market borrowed $84 billion for investment housing during calendar 2012. They bought about 425,000 properties.
Investors held a 42% market share, on average, across 2012. But like the first home market, this buyer segment fluctuates over time. Investor interest has increased in recent times, up from a 40% market penetration at the start of last year, to 46% by years end.
Investors borrowed $91 billion during 2007/08.
Also of note is that 14% of all mortgages are now fixed, up from 2.5% in late 2008. Earlier that year (March 2008) a quarter of all housing loans were fixed across Australia, the highest proportion in Australian history.
My comments
• Many think the cash rate has further to fall. They are probably correct. In coming months the proportion of home loans fixed will enter the 20% range. By year’s end a new record is likely to be set.
• The first home buyer market is likely to remain subdued. The election-driven incentives in 2009 bought this market forward. It is hollowed out and will take time to back fill. Higher migration levels & new incentives (see below) will have limited impact on volumes here.
• The first home buyers grant – as we have said many times before – has driven up prices, distorted the housing cycle & in fact has seen fewer first home buyer transactions than would have been the case if it wasn’t implemented at all. This incentive, for mine, completely warped first time buyer expectations vis-à-vis buying a property.
• An improving housing market – especially in marginal seats – is good for a federal incumbent political party. With Canberra planning a superannuation tax – Federal Labor is encouraging people to exist super and use the tax benefits of housing via the residential home or negative gearing. This will push house prices up and that’s always good for votes. What would add more fuel to the fire is a bigger first home buyer’s grant. Watch this space.
• The investor market will be the growth segment this year & next. The repeat owner resident buyers will improve too but not as much. Increasing sales (and loans) will see prices improve; sales rates increase and hopefully more housing starts. Last year just $30 billion was borrowed to buy a new home – across all three buyer groups. New home loans make up just 15% of the total mortgage market. This is an improvement on 2003’s 12% market, but way down on the 25% pre-GST average.
• The first home buyers grant should go – once and for all – and GST on new property should be removed or at least be levied across existing property transactions as well.
By Michael Matusik, director and founder of Matusik Property Insights.*
Property Reviewer on Property Review
