First home buyers are returning to Australia's housing market as investors retreat to the sidelines

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The Australian Bureau of Statistics (ABS) released housing finance figures for December today, and like almost all other housing market indicators recently, it was pretty weak.

In seasonally adjusted terms, the total value of home loan lending fell 1.6% to $32.88 billion, continuing the gradual downward trend seen over the past few months.

Loans to owner-occupiers fell by 1% to $21.07 billion, outpaced by a larger 2.6% drop to investors which fell to $11.82 billion.

Source: Commonwealth Bank

“Lending to owner occupiers is holding up well,” said John Peters, Senior Economist at the Commonwealth Bank.

While owner occupied lending fell, it was 4.4% higher than a year ago. A key factor has been a pick up in first home buyer loans in late 2017. This increased first home owner loan take up has been driven mainly by changes to first home buyer sweeteners introduced in July by the New South Wales and Victorian state governments.

In contrast, Peters said annual lending to investors fell by 10.5% from a year earlier, driven lower by tighter lending restrictions introduced by APRA last year.

“There was a clear loss of momentum in lending to investors in late 2017,” he said.

“This is because of APRA restrictions in relation to the share of new interest only loans and higher interest rates for investors vis a vis owner occupiers.”

In response to what were perceived to be building financial stability risks in the housing market, APRA introduced a 30% limit on interest-only lending as a proportion of total new housing finance in late March last year.

That followed the implementation of a 10% cap on annual investor housing credit growth in December 2014.

As investor activity wanes as a result of tighter macroprudential measures, there are clear signs that first home buyers are taking their place with finance to this cohort lifting 26.4% over the year.

“Lending to first home buyers lifted noticeably around mid year as the New South Wales and Victorian governments introduced stamp duty reductions for first home buyers,” says Peters.

FHB loans as a proportion of total owner-occupier loans. Source: Commonwealth Bank

Mirroring the decline in the dollar value of home loan lending, the number of loans issued to owner-occupiers also fell, declining by 2.3% to 55,161.

That missed economist forecasts for a smaller decline of 1%.

Peters said the result was much like most other housing indicators right now: soft.

“Today‚Äôs data is consistent with other indicators that show conditions in the housing market are cooling, particularly in Sydney,” he says. “But talk in some quarters of a housing sector meltdown appears to be far fetched on current housing data.”

NOW READ: Here’s another sign that Australia’s east coast housing market is slowing down

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