Australian regulators are trying valiantly to cool the property market by curbing investor lending, but demand appears stubbornly strong.
The latest housing finance data for May, published by the Australian Bureau of Statistics on Tuesday, showed a surge in owner-occupier lending is compensating for a drop in investor loans.
For the fourth month in a row, the total amount of money lent for mortgages across Australia declined slightly, from $33.3 billion in January to $32.8 billion in May.
Over the month, housing finance fell -0.3 per cent in value, on the trend measure, driven by a -1.5 per cent shrinkage in loans to investors.
However, owner-occupier loans rose +0.4 per cent in value over the month.
Owner-occupiers are surging back into the market, lured by the juicy rates on offer by the banks. The share of new loans going to investors has been gradually declining, from 40.3 per cent in January to 37.3 per cent in May.
The modest dent in mortgage lending may disappoint the Australian Prudential Regulation Authority, if indeed it is trying to cool the market overall. Or it might simply be satisfied that more owner-occupiers are getting in.
A comparison of mortgage lending in May each year shows that cheaper loans to owner-occupiers are blunting the impact of the investor rate hikes by the banks.
The big drops in 2015 were the last time APRA attempted to cool the market. As the chart above shows, the effect was temporary.
So the regulator had another go. In March this year, the regulator announced that banks would have to limit “higher-risk” interest-only loans to 30 per cent of new residential mortgages, down from 40 per cent.
The banks were also instructed to keep investor lending “comfortably below” the 10 per cent annual growth rate APRA imposed in December 2014 – which was interpreted as an even lower benchmark.
Banks have responded by hiking rates for investor and interest-only mortgages, gradually widening the gap relative to the Reserve Bank’s cash rate, in order to comply with the tighter rules.
The RBA estimated that, as of June, the standard variable rate for investors was an average of 5.8 per cent, up 30 basis points since November 2016.
And yet, price growth is stubborn.
The latest CoreLogic numbers had dwelling prices increasing by a huge 1.8 per cent in June, the strongest month-on-month increase in two years, despite small (possibly seasonal) dips in April and May.
Treasurer Scott Morrison has already claimed victory. He said earlier this month the Coalition government had achieved a “safe landing” for house prices by relying on APRA, as opposed to Labor’s “hard landing” of cutting tax breaks for investors.
First home buyers will be hoping he was right, as the supposed cooling has so far not translated to greater affordability.
It did take a few months for APRA’s 2015 crackdown to be fully felt. Many experts are predicting the market will cool further this year.
CoreLogic reported this week that the national price-to-income ratio – a popular measure of affordability – reached 7.3 per cent in the March quarter of 2017, up from 7.2 in 2016 and 6.1 in 2007.
The data firm also calculated that it would have taken 1.5 years of gross annual household income to save a mortgage deposit in the March quarter of 2017, compared to 1.4 years in 2016 and 1.2 years in 2007.
A recent Essential Media poll of 1025 people, conducted in June and July, found that 66 per cent believed housing to be unaffordable in their area for someone on an average income – and 73 per cent considered housing to have become less affordable in their area over the past five years.