It is becoming clearer that the window for large numbers of first home-buyers to scramble into the property market is fast closing, with investors and speculators chasing big capital gains returning.
With the house price boom showing few signs of cooling, this baton-pass should ensure an ongoing and lively debate about whether it is time for regulators to place restrictions on mortgage lending.
Earlier this year, first-home buyers were flooding into the property market in numbers not seen since 2009, attracted by generous taxpayer incentives and record-low interest rates. Sadly, the first-home-buyer party appears to have been short-lived. New lending to this group has fallen for three months in a row, no doubt partly in response to the explosion in prices.
Meanwhile, investors are flooding back into the market, with their share of new lending rising from 23 per cent to 26 per cent. New investor commitments in April were at their highest level since 2017, when we were in another property boom.
Importantly, investors’ share of the market is still well below the sky-high 46 per cent of new lending reached in 2015, and below its long-term average of about 35 per cent. However, the harsh financial realities of this property market suggests that this trend still has a lot further to run.
For one, CoreLogic analyst Tim Lawless says first-home buyers tend to be the most sensitive to rising prices, especially when it comes to scraping together enough cash for a deposit.
Investors, on the other hand, typically have better access to funding because they can borrow against their owner-occupied residence, or other property investments. They also often have higher incomes, and Lawless says they’ll probably become more active in the market chasing capital gains.
So far, banks say there are only early signs that investors’ interest is stirring, and owner-occupiers are still overwhelmingly driving the market. That is one reason regulators have pushed back against imposing credit restrictions so far. But with the Reserve Bank of Australia (RBA) saying it expects to keep official interest rates at just 0.1 per cent until at least 2024, more house price growth looks likely.
If there is a further significant rebound in investor lending accompanied by related property price surges, it could force regulators to think more carefully about introducing housing credit curbs.
Why? The RBA has made it clear that an investor-driven market has distinct risks.
In 2015, the central bank said that when house prices were being fuelled by “speculative demand” from investors chasing big capital gains, it tends to “amplify” the run-up in prices, while potentially raising the risk of bigger property price falls in the future.
To be clear, we are not in a 2015-style investor housing boom today. However, interest rates are much lower and asset prices everywhere are rising, suggesting these risks are as relevant as ever.
Politicians might also find it more challenging to allow the market to continue its red-hot run if investors start playing a bigger role, while first-home buyers dwindle.
So far, the financial regulators have argued they are not responsible for house prices and will only act if the banks erode their lending standards. That does not appear to be happening, suggesting credit curbs are not imminent.
Even so, the growing signs of investors coming back to the market, as first home buyers head for the exits, is an important shift the authorities will be watching closely.
Article Source: www.brisbanetimes.com.au
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