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Investor Borrowing Reaches New Heights
Investor borrowing has surged to its highest level in over two years, signaling renewed confidence in the Australian housing market. According to data from the Australian Bureau of Statistics (ABS) published on Friday, new home loan commitments to property investors rose by 2.7% from May to $11 billion in June, the highest monthly figure since March 2022. Total new investor credit, excluding refinancing, increased by nearly 18% in the 2023-24 financial year, reaching $117.9 billion.
Despite a slight increase in vacancy rates across capital cities in June, pushing the national vacancy rate to 1.3% from 1.2% in May, the tight housing market continues to attract investors. Rents are growing at a slower pace, but investor demand remains strong due to higher gross rental yields and a very tight rental market. Maree Kilroy, a senior economist at Oxford Economics Australia, noted that the narrowing gap between owner-occupier and investor mortgage rates, driven by bank competition for market share, is also stoking investor demand.
An easing in inflation, revealed this week, has largely quashed expectations that the Reserve Bank of Australia (RBA) will lift the cash rate from the current 4.35%. This stability is expected to moderate house price growth, with Pricefinder predicting a 7.6% median combined capital city gain for FY24. Ms. Kilroy anticipates a softer 5% increase in the combined capital city median house price for FY2025. Perth, Adelaide, and Brisbane are expected to drive much of the price growth, while Melbourne and Hobart are likely to act as drags, with Sydney sitting in the middle. Perth, in particular, is poised to be the standout Australian housing market due to nation-leading population growth and an affordability advantage.
Owner-Occupiers and First Home Buyers
New loan commitments to owner-occupiers, who make up a larger component of housing demand than investors, saw a modest increase of 0.5% to $18.2 billion for the month. Over the FY24 period, owner-occupier loans rose by just 3.7%, totaling $206.4 billion. However, housing finance commitments to first-home buyers, a subset of owner-occupiers, picked up at a faster rate, increasing by 1.5% to $5.3 billion in June. This represents an annual increase of 12%, bringing the total to $59.5 billion, according to the ABS figures.
The value of new home-building loans also rose by 2.9% to $1.8 billion, the highest monthly total since November 2022. The Housing Industry Association indicated that the residential construction sector has passed its trough, suggesting a potential recovery in the industry.
Refinancing Trends and Australian Housing Market Outlook
Refinancing activity for owner-occupiers has been on a decline, with the number of new loans attached to borrowers refinancing falling for the fourth consecutive month to a seasonally adjusted 17,185, the lowest since December 2020. Belinda Allen, a senior economist at Commonwealth Bank, stated that refinancing activity for owner-occupiers peaked in July 2023 and continues to fall. The peak roll-off of fixed-rate loans has already occurred, leading to a slowdown in refinancing activity. However, investor refinancing activity has not seen as significant a slowdown.
Overall, the Australian housing market is experiencing dynamic shifts with increasing investor activity, modest growth in owner-occupier commitments, and varying trends in refinancing. As inflation eases and interest rates stabilize, the market outlook remains cautiously optimistic, with certain regions expected to outperform others in the coming years.
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