Record home loans; House approvals at 2-year high

Building Approvals; Lending finance

Dwelling approvals: Council approvals to build new homes rose by 15.4 per cent – the biggest rise in seven months (consensus: +1.5 per cent).

Home loans: The value of new loan commitments for housing rose by 5.9 per cent in September after lifting by a record 12.6 per cent in August. Loans are up almost 34 per cent in four months.

Migration: In the June 2020 quarter, 85,500 people moved interstate. This was 3 per cent down on the number who moved in the previous quarter and down 15 per cent on a year ago.

The building approvals and lending finance data has implications for banks, retailers, developers, building and building material companies.

What does it all mean?

• For now, the housing market is in good shape. Council approvals to build new homes surged in September to be almost nine per cent higher than a year ago. Home prices are rising almost everywhere. And loans to buy or build homes are at record levels.

• Challenges ahead include the job market, in-bound migration, the timing of stimulus withdrawal and continued progress in suppressing the virus.

• More people are looking to build homes. In part this reflects government grants – especially for first-time builders and record low interest rates. But the COVID-19 virus may also be prompting people to re-assess their housing needs, perhaps looking to build houses in outer suburbs or regional areas in preference to inner-city living.

• Despite low interest rates, affordability may again be an issue with the average mortgage lifting across the nation and hitting record highs in Queensland.

• Preliminary figures suggest that more people weren’t keen to pull up stumps and move intra or inter-state in the three months to June. Clearly COVID-19 may have stifled plans due to state border closures. But the data will be worth watching to see how Aussies respond to the virus in re-assessing their lifestyles.

What do the figures show?

Building Approvals – September

• Council approvals to build new homes rose by 15.4 per cent – the biggest rise in seven months. Approvals are up 8.8 per cent on the year.

• House approvals rose by 11.1 per cent – the biggest increase in almost seven years (January 2014).

• Apartment approvals rose by 25 per cent after falling 14 per cent in August.

• Over the past year 175,294 new homes were approved, down 1.1 per cent on a year ago, but a five-month high for the rolling annual average.

• Dwelling approvals across states/territories in September: NSW (+4.6 per cent); Victoria (+12.4 per cent); Queensland (+19.3 per cent); South Australia (+28.3 per cent); Western Australia (+42.6 per cent); Tasmania (+18.8 per cent). In original terms, Northern Territory (+150 per cent); ACT (-7.9 per cent).

• The value of all commercial and residential building approvals fell by 17 per cent in September after rising 17.2 per cent in August. Residential approvals fell by 0.7 per cent with new building down 1 per cent and alterations & additions 1.1 per cent higher. And commercial building fell 36.7 per cent after rising 40 per cent in August.

• Over the year to September, building approvals totalled $114.1 billion, 11.2 per cent above the decade average.

Lending – September

• The value of new loan commitments for housing rose 5.9 per cent in September after rising a record 12.6 per cent in August. Owner-occupier loans were up 6.0 per cent to a record $17.3 billion. And investor loans were up by 5.2 per cent. The accompanying table has the details of lending per category.

• The value of owner-occupier first home buyer loan commitments rose by 5.6 per cent to be up 46.6 per cent on the year.

• The value of first home buyer loan commitments accounted for 30.7 per cent of all owner occupier commitments (excluding refinancing), just down from a 10½-year high.

• The number of owner occupier first home buyer loan commitments increased 6 per cent in seasonally adjusted terms to a 10½-year high of 13,040 (40.4 per cent of all loans).

• Personal finance fixed term loan commitments rose by 8.5 per cent in the month by were still 10.1 per cent down on a year ago.

• Personal lending from revolving sources (including credit cards) rose by 10.1 per cent in September. Loans were down by 32.4 per cent over the year.

• New finance leases rose by 8.6 per cent in the month. Finance leases were up 16.2 per cent on the year.

• The value of new loan commitments to businesses for construction rose by 57.2 per cent in the month but were still down 47.3 per cent on the year.

• Loans for the purchase of property by business rose by 10.1 per cent in September but were still down by 19 per cent over the year.

Internal Migration – June quarter

The Australian Bureau of Statistics reported:

• “In the June 2020 quarter, 85,500 people moved interstate. This was 2,300 (3 per cent) less than the number who moved in the previous quarter and 14,800 (15 per cent) less than in the June 2019 quarter.

• Queensland gained the most people from net interstate migration (+6,800) over the June 2020 quarter, while New South Wales lost the most (-4,000).

• Victoria had the largest change in net migration, decreasing from 600 people in the previous quarter to -3,000 in the June 2020 quarter. This was a result of arrivals decreasing from 18,200 to 15,900 and departures increasing from 17,600 to 19,000.

• The number of interstate movers in the June 2020 quarter (85,500 people) was the lowest for a June quarter since 2014 (84,900).

• More people moved from Victoria to New South Wales (6,900) than from New South Wales to Victoria (6,100), for the first time since the June 1997 quarter.

• In the June 2020 quarter there was a net loss of 10,500 people from Australia’s greater capital cities through internal migration. This was a larger net loss than in the previous quarter (-10,100) and the June 2019 quarter (-4,300).

• The net loss was the result of 47,500 arrivals (down from 55,700 in the June 2019 quarter) from and 57,900 departures (down from 60,000 in June 2019) to non-capital city areas.

• Brisbane gained the most people through net internal migration (+3,200) while Melbourne lost the most (-8,000) in the June 2020 quarter.

• Melbourne had the largest change in net migration, from -2,200 people in the previous quarter to -8,000 in the June 2020 quarter. Sydney had the next largest change, from -8,100 to -6,000.

What is the importance of the economic data?

• The Bureau of Statistics’ (ABS) monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for r construction-related companies.

• “Lending Indicators” is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.

• The ABS internal migration data is “a temporary publication in response to COVID-19 and the heightened interest in internal migration data.” The data has importance for retail and housing businesses and government planners as well as infrastructure and utility companies.

What are the implications for investors?

• Home builders and building material companies are being supported through these strange time by healthy demand. But there are challenges ahead. Both the internal and external migration data bear watching closely.

• The latest data suggests that people are now leaving Victoria on balance while Queensland is seeing inflows. The Victorian Government has been successful in halting the second wave of the virus, now it will need to act quickly to generate economic momentum.

Published by Craig James, Chief Economist, CommSec