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First home buyers return; Record building workConsumer confidence, Housing finance, Building activity
Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment rose by 1.8 per cent in January – a 4-year high. The index now stands at 105.1 (long-term average 101.5). A reading above 100 denotes optimism.
Number of home loans: The number of loans (commitments) for home owners (owner-occupiers) rose by 2.1 per cent in November after falling by 0.6 per cent in October.
Value of home loans: The value of new housing commitments (owner occupier and investment) rose by 2.3 per cent in November after rising by 0.3 per cent in October.
First home buyers: The proportion of first-time buyers in the home loan market rose from 17.6 per cent to a 5-year high of 18.0 per cent in November (decade-average 17.9 per cent).
Record home loan size: The average home loan across Australia stood at $388,900 in November, up by 3.3 per cent on a year ago – a record high.
Home building: Dwelling starts (commencements) rose by 0.7 per cent in the September quarter after a 4.3 per cent lift in the June quarter (previously reported as a 1.2 per cent increase). A record 67,067 apartments are currently being built in NSW. 
What does it all mean?
Home prices might be declining but lending is still increasing. With interest rates at record lows and job security improving, Aussies felt comfortable enough to increase their mortgage debt in November. The average new home loan size now stands at record highs.
Lending to owner occupiers and investors both increased in November. While lending by owner occupiers is still up on a year ago, finance provided to investors is down sharply over the year.
The bank regulator, the Australian Prudential Regulation Authority (APRA), has successfully engineered a slowing of the Sydney investor housing market. According to the REA Group, demand from Chinese investors seeking Sydney properties has fallen by over 30 per cent since last year.
One beneficiary of cooling home prices in Sydney and Melbourne are first home buyers who continue to take out loans.
While dwelling investment likely peaked in 2016, a record number of apartments are currently being built in NSW. Further, apartment approvals are strong, especially in Sydney and Melbourne, supported by solid population and employment growth.
The construction boom looks set to continue. A record amount of residential and commercial building work is yet to be done. This is complemented by government spending on road, rail and public transport – related infrastructure.
What do the figures show?
Consumer confidence
The Westpac/Melbourne Institute survey of consumer sentiment rose by 1.8 per cent in January – a 4-year high. The index now stands at 103.3 (long-term average 101.5). A reading above 100 denotes optimism.
The current conditions index rose by 3.5 per cent and the expectations index increased by 6.8 per cent.
Four of the five the components of the index rose in January:
The estimate of family finances compared with a year ago fell by 1.1 per cent;
The estimate of family finances over the next year was up by 1.7 per cent;
Economic conditions over the next 12 months was up by 2.6 per cent;
Economic conditions over the next 5 years was up by 5.4 per cent;
The measure on whether it was a good time to buy a major household item was up by 0.5 per cent.
Housing outlook: A good time to buy a dwelling? The index was up by 6.1 per cent in January. However, house price expectations fell by 4.4 per cent.
Unemployment expectations: Unemployment expectations fell by 3.8 per cent in January and they are now down by 13.7 per cent over the year.
Housing finance – number
The number of loans (commitments) for home owners (owner-occupiers) rose by 2.1 per cent in November after falling by 0.6 per cent in October.
Loans by owner-occupiers for the construction of homes increased by 2.0 per cent in November after declining over three consecutive prior months. Construction lending had fallen by 6.6 per cent in three months.
Loans to buy newly-erected dwellings rose by 2.6 per cent in November after declining by 2.1 per cent in October.
Loans for the purchase of established dwellings (excluding refinancing) increased by 2.1 per cent in November. Loans had declined by 2.7 per cent in the previous two months.
The number of refinancing transactions rose by 1.5 per cent in November after falling by 0.2 per cent in October.
Housing finance – value
The value of new housing commitments (owner occupier and investment) rose by 2.3 per cent in November after rising by 0.3 per cent in October.
Owner-occupier loans increased by 2.7 per cent and investment loans rose by 1.5 per cent in November. Investor loans are now down by 8.3 per cent on a year ago.
The value of loans by owner-occupiers and investors to build new homes rose by 4.8 per cent in November to $3.45 billion – the highest level on record.
Housing finance – other statistics
The value of cancelled loans rose by 3.7 per cent in November after declining by 8.0 per cent in October.
Commitments actually advanced (loans made) jumped by 8.4 per cent in November and are up by 7.0 per cent on a year ago.
The proportion of first-time buyers in the home loan market rose from 17.6 per cent to a 5-year high of 18.0 per cent in November (decade-average 17.9 per cent).
The proportion of fixed rate loans fell from 16.7 per cent to 15.8 per cent in November – the lowest in 8 months.
And the average home loan across Australia stood at $388,900 in November, up by 3.3 per cent on a year ago – This is complemented by government spending on road, rail and a record high.
Dwelling starts
Dwelling starts (commencements) rose by 0.7 per cent in the September quarter after a 4.3 per cent lift in the June quarter (previously reported as a 1.2 per cent increase).
House starts fell by 3.4 per cent while apartments rose by 5.9 per cent. Work started on 218,993 new dwellings over the year to September 2017, down 6.3 per cent from the record high of 233,616 dwellings in the year to March 2016.
Across Australia, starts in the September quarter fell in four states/territories: NSW (down by 8.2 per cent); Victoria (up by 17.1 per cent); Queensland (down by 5.9 per cent); South Australia (up by 0.2 per cent); Western Australia (down by 6.3 per cent); Tasmania (down by 0.7 per cent); Northern Territory (up by 67.4 per cent); and the ACT (up 67.4 per cent).
In the year to September, dwelling starts were higher than the decade average in all the states & territories except for the Northern Territory (down 26.4 per cent), Tasmania (down 14.1 per cent), and Western Australia (down 19.9 per cent). Starts in NSW (71,284) were 62.4 per cent above the decade average. Victorian starts were 23.1 per cent above the decade average with Queensland up 9.7 per cent, South Australia up 5.3 per cent and ACT up 36.4 per cent.
A record 67,067 apartments are currently being built in NSW, from a total of 87,048 homes being built.
A record $67.3 billion of residential and commercial building work is yet to be done (completed), up 10.7 per cent on a year ago.
Across Australia, 219,741 homes are being built, down just 2 per cent on the 224,314 record set in September quarter 2016.
What is the importance of the economic data?
Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
The Australian Bureau of Statistics releases data on dwelling commencements (starts) each quarter. The figures provide guidance on future construction activity. If construction begins on new houses or apartments, it signifies work for building trades.
What are the implications for interest rates and investors?
The heat has come out of the housing market as APRA engineers a slow-down in investor lending. There may be fewer Chinese investors, but Aussies are still borrowing – especially first home buyers.
The strong jobs market and record low mortgage rates are encouraging households to increase their housingrelated debt. Consumer confidence is at 4-year highs amid growing expectations for a better economic outlook. The desire to purchase a household item has rebounded.
The number of homes being built across Australia has come off all-time highs, but not significantly. Population growth remains firm in many states, providing fundamental support for new construction. The stand-out is the record number of apartments being built in NSW. Both NSW and Victoria are also leading finance approvals, while the mining states of Queensland and Western Australia are bouncing-off lows.
The number of apartments being built at present is unprecedented, and with new council approvals lifting this potentially adds to the pipeline of housing activity. Retailers, building material suppliers and developers will continue to benefit from dwelling investment and construction activity.
Originally published by Ryan Felsman, Senior Economist, CommSec