Housing investment lending in Australia is surging

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The value of loans extended to housing investors in Australia surged yet again in January, according to data released by the Australian Bureau of Statistics earlier (ABS) today.

And following concern expressed by the Reserve Bank of Australia (RBA) in recent weeks, that suggests the likelihood of tougher restrictions to cool investor activity in the marketplace may be on the way.

According to the ABS, the value of investor lending surged by 4.2% to $13.784 billion in seasonally adjusted terms, leaving it at the highest level since May 2015.

It has now risen in seven of the past nine months, taking the year-on-year increase to a giddying 27.5%.

The latter was the strongest growth recorded since January 2015, the month after APRA introduced an annual cap on investor credit growth of 10% per annum.

The effect of that policy tweak can be seen in the chart below, as can the recent resurgence in investor loan growth.

In its March monetary policy statement, the RBA said that “supervisory measures have contributed to some strengthening of lending standards” within Australia’s housing market, seemingly a less-confident view than what it expressed in February when it said that “supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments”.

That tweak in language was taken by some prominent economists that tougher macroprudential measures to slow housing credit growth — particularly to investors — could arrive in the coming months should investor activity now slow.

That followed remarks from RBA governor Philip Lowe to parliamentarians late last month that supervision of lenders would likely be tightened further should investor credit growth keep accelerating after troughing in the early parts of last year.

Based on January’s housing finance figures, there’s no signs of a slowdown in investor activity, seeming increasing the odds that supervision will be tightened further.

The pickup in activity also corresponds with elevated action clearance rates and house prices in Sydney and Melbourne, previously favoured markets for investors.

In comparison to the surge in investor lending in January, the value of loans extended to owner-occupiers fell by 0.2% to $20.128 billion.

Despite the monthly decline, it was still 1.9% higher than the levels of a year earlier, the first positive year-on-year growth rate since July 2016.

Excluding refinancing, the value of owner-occupier loans fell by 1.5% to $13.63 billion. That was the first decline since September last year, although the year-on-year increase still accelerated to 5.6% from 2.1% in December.

Owner-occupier refinancing rose by 2.6% to $6.5 billion, coincidentally the first increase reported since September last year. From a year earlier it fell by 4.9%, largely reflecting the lift in swap rates over that period.

Combined, the total value of housing finance increased by 1.5% to $33.911 billion in February. It was the highest monthly total on record, surpassing the previous record set only a month earlier.

From a year earlier, the total value of housing finance rose by 11%, the fastest pace since August 2015.

In terms of actual loan commitments, those to owner-occupiers rose by 0.5% to 55,153, topping expectations for a decline of 1.0%.

Commitments to buy an established dwelling were responsible for the increase, rising by 0.8% to 46,775. That helped to offset falls of 1.4% and 0.3% for loans to construct or buy a new dwelling which fell to 5,522 and 2,855 respectively.

The ABS does not release investor lending commitments as part of the housing finance report.

Excluding seasonal factors, the ABS said that the proportion of owner-occupier loans to first home buyers fell to 13.4%, down from 13.8% in December.

That was the lowest percentage since September 2016, but above the multi-decade low of 12.9% set in March 2016.

It also does not take into consideration that some first home buyers are now entering the property market as investors rather than owner-occupiers.

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