The Weekly Wrap: Auctions up but investor activity is dropping
Investor interest in the housing market has started to drop off, according to CoreLogic research analyst Cameron Kusher.
Housing finance and credit data released earlier this month by the Australian Bureau of Statistics (ABS) and Reserve Bank (RBA) show there has been a decline in investor activity, with mortgage lenders rationing credit to the investor segment and the lifting of mortgage rates starting to bite.
“The mortgage rate premium for investors appears to finally be biting into the market with weakness in both total investor credit and investor housing finance commitments,” Mr Kusher said.
Since August 2015, mortgage lenders have been charging interest rate premiums for investors.
- While standard variable mortgage rates for owner occupiers were recorded at 5.45% in August 2015, the same mortgage type for investors had a mortgage rate of 5.75% or a 30 basis point premium
- Since August 2015, the cash rate has fallen by 50 basis points however, mortgage rates have not shown the same decline
- At the end of May 2017, standard variable mortgage rates were recorded at 5.3% for owner occupiers and 5.8% for investors
- Despite two 25 basis point interest rate cuts since August 2015, owner occupier mortgages rates are now only 15 basis points lower while investor mortgage rates are 5 basis points higher and have a premium of 50 basis points compared to a typical owner occupier mortgage.
April 2017 lending aggregates data from the Reserve Bank (RBA) showed that investor credit rose by 0.55% over the month, its lowest monthly increase since August 2016. At the same time, April 2017 housing finance data shows there was $12.6 billion in investor housing finance commitments over the month, the lowest value since September 2016.
Since August and September of last year, standard variable mortgage rates for investors rose by 30 basis points compared to a 5 basis point increase for owner occupiers.
As of April 2017, New South Wales accounts for 49% of all investor lending with Victoria accounting for 27%. investors accounted for 55.3% of mortgage demand in New South Wales in April 2017 and 46.8% in Victoria. In other states, investors account for less than 40% of mortgage demand.
“A pullback in lending to investors is inherently likely to have more of an impact on the New South Wales (Sydney) and Victorian (Melbourne) housing markets.”
Mr Kusher said investor demand is likely to continue to slow over the coming months.
With investor demand likely to fade further, Mr Kusher expects that this will also contribute to a further slowing of the rate of value growth in the Sydney and Melbourne housing markets where investor demand has been significantly greater than it has been elsewhere.
He said, “A reduction in the pace of capital gains will add further disincentive to investors.”
Considering that rental yields in Sydney and Melbourne are close to record lows, Mr Kusher said, “we can assume most investors are focussed on the prospects for capital growth and relying on a negative gearing strategy to offset the cash flow losses.
This week, the number of auctions scheduled to take place across the combined capital cities is expected to rise. There are 2247 properties scheduled to go to auction this week, increasing from 1279 auctions held last week.
Glen Waverley in Victoria is the busiest suburb for auctions across the nation this week, with 20 homes set to go to go under the hammer, followed by Mosman in NSW with 16 scheduled auctions, and Reservoir and St Albans both in Victoria, with 15 auctions each.
Last week, the auction clearance rate across the combined capital cities fell to 67.8%, the lowest clearance rate year-to-date. This was due to most states having the Queen’s birthday public holiday.