JP Morgan: Sept. Housing Rush Drove Financing

The total number of home loans issued in Australia surged 5.1%m/m in September (J.P. Morgan 4.0%, consensus 3.0%), as first home buyer (FHB) demand spiked ahead of the imminent phasing out of the expanded FHBs’ grant on October 1. The rise in home loans in September followed two straight months of decline.

As we expected, FHBs accounted for a larger portion of loans issued in September, above 26% of the total compared to below 25% in August. With the expanded portion of the FHB’s grant now being phased out, however, and with mortgage rates rising and bank lending standards having tightened, FHB home loan demand will moderate from here. This demand probably will be further dampened by the government’s decision to introduce house price caps on the basic grant of A$7,000 as of December 31.

The chart below illustrates the impact of the expanded FHB grant on demand for housing finance. Since last October, when the grant was first expanded, there has been a significant rise in the value of home loans for owner-occupiers. This had appeared to be leveling out in recent months, but a last minute rush of FHBs attempting to take advantage of the fully expanded grant prompted an up-tick in owner-occupier housing finance in September.

(To view pertinent charts please see the following document: http://img.scoop.co.nz/media/pdfs/0911/JPMorgan119.doc)

The number of fixed rate loans fell in September. We expected that more borrowers would have locked in interest rates amid speculation that the official cash rate would rise throughout the final quarter of the year (the RBA hiked the cash rate 25bp in October and November). Marking the fourth straight monthly fall, fixed rate loans accounted for only 5.6% of all loans issued in September, down from 6.3% in the previous month.

Some softening in demand for housing finance in the months ahead probably will be welcomed by the RBA. RBA officials have flagged the risks associated with excesses forming in the housing market, with Governor Stevens highlighting the risk that increased housing demand simply may push up prices, without creating enough new dwellings. Indeed, data last week showed nationwide house prices spiked 4.2%q/q in 3Q, the same rate as in the previous quarter.

ENDS

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