Mortgage demand spikes, investor demand turns positive

The Australian Bureau of Statistics (ABS) has released its latest Lending Indicators data, reporting a 4.4 per cent ($19.6 billion) increase (seasonally adjusted terms) in the value of housing loans approved in December.

The increase was driven by a 5.1 per cent ($14.2 billion) spike in the value of owner-occupied housing loans – the sharpest increase since August 2015 – and a 2.8 per cent ($5.4 billion) rise in the value of investor loan commitments.

The value of mortgage volumes increased 14 per cent in the 2019 calendar year, led by 17.9 per cent growth in the owner-occupied channel.

The December figures have also signalled the first annual increase in the value of investor loans in two years, up 4.9 per cent in the 2019 calendar year.

Reflecting on the ABS data, ANZ Research observed: “Improved sentiment in the property market, driven by easier credit, low interest rates and consistently strong price growth, is behind the continuing strength of mortgage demand.”

Tim Hibbert, principal economist at BIS Oxford Economics, agreed, adding that he expects strong demand for housing credit to continue throughout the year, fuelled by the rebound in dwelling values.

“Price growth in Sydney and Melbourne continues to run strong, with Australia’s other major cities starting to join the party,” he said.

“With property turnover on the up, the outlook for total housing loan demand looks strong for 2020.”

However, ANZ Research noted that the continued pick-up in mortgage demand would concern the Reserve Bank of Australia (RBA).  

“While housing credit growth is still low, strong demand for finance looks to be of concern for the RBA, with the bank now weighing up more carefully the costs and benefits of further rate cuts,” ANZ Research noted.

Last week, RBA governor Philip Lowe told the National Press Club that the central bank would closely monitor developments in the credit space to ensure that its monetary policy strategy does not spark a disorderly boom in the mortgage market.

“[We] need to remember that it is possible to have too much of a good thing,” he said.

“We are aware of the risk of low interest rates encouraging too much borrowing and driving excessive asset valuations, [so] we will continue to watch borrowing, in particular, very carefully.”

This comes amid growing speculation about the potential introduction of a fresh wave of macro-prudential measures from the Australian Prudential Regulation Authority (APRA) as an alternative to a reversal in the RBA’s monetary policy strategy.

APRA chair Wayne Byres previously stated that the regulator would carefully monitor developments in the market in light of the recent rebound in activity.

“[The] housing market remains an area we are watching closely, particularly given record-low interest rates, already high household debt and signs of some revival in borrowing for speculative purposes,” Mr Byres said.

Meanwhile, analysts are expecting further cuts to the cash rate in the first half of 2020, with AMP chief economist Shane Oliver expecting the cash rate to fall to 0.25 per cent to help achieve the RBA’s targets of sustainable growth in the economy, full employment and 2-3 per cent annual inflation.

[Related: RBA weary of rate-driven mortgage boom]