Investors in residential property have come out of hibernation and were the driving force behind the record 5.5 per cent increase in housing finance in March.
Having kept a low profile during the pandemic, investors and speculators are now returning to the market with gusto. And that suggests only one thing – home prices will continue to be pushed higher.
The colloquial definition of what turns a housing boom to a housing bubble is the increasing participation of investors. Judging by the latest numbers from the Australian Bureau of Statistics (ABS) investors could soon replace first home buyers as key drivers of the red-hot property market.
The 12.7 per cent increase in financing to investors dwarfed the (already strong) 5.2 per cent increase in finance to owner occupiers. And the value of those loan commitments to investors is up 54 per cent on March last year.
And the phoenix-like rise in housing investors has coincided with early signs of a peak in demand for finance by first home buyers whose participation in the housing market appears to be running out of steam. In March first home buyer finance fell by 3.1 per cent (seasonally adjusted), according to the ABS.
The levelling out of first home buyer demand was only ever a matter of time as this group would ultimately come up against the barrier of affordability.
Government assistance and low interest rates spurred demand from first home buyers last year but as prices have moved up the window of opportunity has narrowed. Meanwhile, some of the robust demand from those making their first move into property is thought to have been pulled forward.
Investors deserted the residential property market in response to COVID as rents and returns fell as did values in the early stages of the pandemic. The apartments segment was hit particularly hard as immigration disappeared.
While rents remain at historically low levels, there are clear signs that rental increases are starting to come through – particularly in the outer suburbs of capital cities, the smaller capitals and in regional areas. In March rents rose by 0.6 per cent in Sydney and by 0.2 per cent in Melbourne according to CoreLogic
But the broader enticement for investors is capital gains on offer in the housing market, which is now in full swing. Prices nationally rose by 1.8 per cent in April and by 2.8 per cent in March and careered ahead 6.8 per cent over the past three months.
For big banks lenders the return of the residential property investor could provide them a new source of demand growth in the event the first home owner market continues to run out of puff.
Despite historically low interest rates, the banks say they are not seeing any deterioration in the quality of their loan books. This is despite intense competition among bank and non-bank lenders to capitalise on the demand for housing finance driven by low rates.
Westpac’s accounts for the six months to March, which were released this week ,showed that only 2 per cent of customers were behind on repayments – a level that has remained the same for a year.
For the most part the banks are arguing that there is no need to apply any macroprudential brakes to the housing market.
But history tells us the rise in investor participation also sets off alarm bells within the regulatory agencies, the Australian Prudential Regulation Authority (APRA) and the Reserve Bank.
Both have been disinclined so far to wade into the rapidly heating property market and introduce measures that will hamper first home owners. But regulators have plenty of form in targeting the more speculative investor cohort with macroprudential tools. And the banks will need to avoid the riskier lending that has traditionally been associated with financing investors.
’The resurgence in investor financing and the continuing surge in owner occupiers who are trading up points to further near term strength in home prices,” according to AMP chief economist Shane Oliver.
“It also points to a further acceleration in housing debt, a further rise in the share of interest only loans and increasing lending at high loan to valuation ratios. All of which is increasing pressure on the RBA and APRA to move to tighten lending standards in order to head off increasing risks of financial instability – which we expect to occur sometime in the next six months.”
Article Source: www.brisbanetimes.com.au
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