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Home loans go through the roof again



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9904

Released 16 June, 1999

HOME LOANS GO THROUGH THE ROOF AGAIN

The total value of new home loans issued in Australia during the March quarter 1999 soared 8.6% above the previous record of $14.7b established in the December quarter 1998. The new record stands at $15.985b.

This was revealed today when Citibank and the Real Estate Institute of Australia (REIA) released their joint Home Loan Affordability Indicators for the March quarter 1999.

In line with the rise in the value of home loans, the total number of loans issued by the three major groups of lenders increased 8.1% to 119,629. Banks had the lion share of the market. They issued 98,841 home loans with a total value of $13.39b comprising 83.8% of the market. Other lenders financed 10,918 home loans for a total value of $1.53b (a 9.6% market share), and permanent building

societies made 4,890 loans worth $0.60b (a 3.8% market share). The source of a further $0.46b was unrecorded.

This result was achieved despite the affordability of home loans as measured by the Citibank/REIA Home Loan Affordability Indicator (HLAI) falling for the fourth consecutive quarter to a level of 40.3. Home loans become more affordable as the indicator rises.

Although the national average new home loan climbed to $135,400 and the average monthly loan repayment increased to $927, home-buyers across Australia obviously regard home loans as very affordable in the current economic climate. They took advantage of further reductions in most interest rates during the quarter and the loan terms and conditions offered by the major groups of lenders, and

invested in residential property at a record level.

Within each State and Territory, the total number of home loans issued over the quarter increased. The average size of new home loans also increased in each State and Territory except in South Australia where the size of a home loan declined 0.4%.

The activity in the home loan markets in the States and Territories continued throughout the March quarter despite median weekly family incomes declining marginally except in New South Wales and Tasmania. Average monthly loan repayments on new mortgages declined in New South Wales, Queensland and Tasmania but increased in all other States. The magnitude of the rise in average

monthly loan repayments ranged from 1.4% in the ACT to 5.4% in Western Australia and a whopping 21.2% in the Northern Territory.

C IT IB A N K LTD Citibank Centre. 1 Margaret Street, SvJnev NSW 2CC0 Tel (02) 9229 9100 Fax (02) 9239 5700 ACN 004 325 0S0

REAL ESTATE IN S T IT U T E OF AUSTRALIA Real kstate House, 16 Thesiger Court, Deakin A C T 2600 Tel (02) 6282 4277 Fax (02) 6285 2444 ACN 008 652 597

In line with the changes in average monthly loan repayments over the quarter, the proportion of family income required to pay the average mortgage declined in New South Wales, Queensland and Tasmania but increased in Victoria, South Australia, Western Australia, Northern Territory and the ACT.

The overall effect of the changes in these home loan factors was to cause the Citibank/REIA Home Loan Affordability Indicators (HLAIs) to fall over the quarter and the year to March 1999 in Victoria, South Australia, Western Australia, Northern Territory and the ACT. Tasmania was the only State where the

HLAI improved over both the quarter and the year to March 1999. In New South Wales and

Queensland, the HLAI improved over the quarter but declined over the year.

President of the REIA, Mr John Franklyn, said “The outcome of the analysis of home loan affordability for the March quarter 1999 is very encouraging for the economy and the Real Estate Industry.”

“The record value of home loans demonstrates the level of activity in the residential property market and its significant contribution to the bouyant GDP figures released by the Australian Bureau of Statistics in the National Accounts for the March quarter 1999. The industry gross value added through home ownership was up 3% over year and the contribution of private dwellings to gross fixed capital formation was up 3.6%.’’

He said, “The high level of activity continued throughout the quarter despite some significant declines in the Citibank/REIA Home Loan Affordability Indicators for the nation and individual States. What this suggests is that we are starting to get a better feel for where the threshold on the HLAI scale might lie. f For example, the HLAI for New South Wales was the lowest for the quarter at a level of 35.0 yet the

demand for, and the average size of home loans in that State increased.”

Mr Franklyn said, “Home-buyers are clearly taking advantage of low interest rates and the terms of home loans being offered by the major lenders in a pre-GST economic environment. The high demand for residential properties is reflected in the increasing median house prices in virtually all capital cities. The rate of capital growth continues to be strongest in Sydney and Melbourne at over 12.5% for the year to March 1999, but rates of growth of between 2% and 5.2% have been recorded for most other capitals. These more consistent positive rates of growth and the high level of demand for home loans

demonstrate a growing confidence in the housing sector as a sound investment option.”

Ms Annette Beacher, economist for Citibank and Salomon Smith Barney, said “Overall, the recent pick-up in home loans is expected to gather even more steam ahead of the GST (likely imposed on 1 July 2000), and should be translated into higher levels of housing investment. International experience, notably from Japan, Germany and New Zealand, confirms that this bubble of activity is directly in

response to bring dwelling investment forward ahead of a tax imposition and/or increase."

“The recent revelation that economic growth is sticky at almost 5%, but the confirmation that inflation is set to only just reach the bottom end of the RBA 2-3% target, sends the signal that official interest rates need not be increased anytime soon. Currently, the pressure to increase interest rates rests wholly with sentiment driven from offshore, notably the US. The Reserve Bank has sent clear signals recently that

monetary policy in Australia need not respond to offshore developments. With this scenario, it is likely that we’ll not see higher interest rates in Australia for some time” she said.

Released by Citibank Ltd and the Real Estate Institute of Australia. For further information, please contact:

Daryl Smeaton CEO REIA w: (02) 6282 4277

m: 0413 878 081

David Wesney Manager, Research REIA w: (02) 6282 4277 m: 0413 838 548

Annette Beacher Senior Economist Citibank

w: (02) 9239 9961 m: 0414 635 741

Table and Graph next page

MARCH QUARTER 1999 COMPARED TO DECEMBER QUARTER 1998

Average Monthly Loan Repayments ($) Proportion of Median Family Income Required to meet Loan Repayments

(%)

Home Loan Affordability Indicator

Quarter Mar-99 Dec-98 Mar-99 Dec-98 Mar-99 Dec-98

Australia 927 907 24.8 24.2 40.3 41.3

NSW 1,105 1,106 28.6 28.9 35.0 34.6

Victoria 865 823 22.4 21.1 44.6 47.4

Queensland 813 820 22.9 23.1 43.6 43.3

SA 681 647 20.5 19.2 48.8 52.0

WA 817 775 21.7 20.4 46.2 49.0

Tasmania 583 607 18.7 19.7 53.4 50.7

NT 912 756 17.7 14.6 56.5 68.6

ACT 875 864 14.3 14.0 70.0 71.3

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Released by Citibank Ltd and the Rea! Estate Institute of Australia. PTO.....

Citibank/REIA Home Loan Affordability State-bv-State

New South Wales - "Affordability of Home Loans Improves” Over the March quarter 1999, the median house price in Sydney rose 7.4% to $281,800 and all interest rates except fixed bank rates declined. Median weekly family income rose 1.1% in NSW, and the average size of a home loan increased 1.2%. But the average monthly mortgage repayment and the proportion of family income required to meet the average loan repayment declined marginally. The overall effect was for the Home Loan Affordability Indicator for NSW to recover 1.2% and stop the decline over the previous three quarters. The total number and value of home loans issued in NSW both increased over the quarter.

Victoria - “Victorians Increase the Number of New Home Loans" As demand increased, the median house price in Melbourne increased 2.4% over the March quarter 1999. Despite a fall in the Victorian weekly family income, the number and average size of new home loans increased as all but bank fixed interest rates declined. As a result, the average size of monthly loan repayment rose 5.1% and the proportion of family income required to meet average loan repayments rose to 22.4% from 21.1% in the previous quarter. The activity in the residential property market was undaunted by falls in the Victorian Home Loan Affordability Indicator of 6% and 10.6% over the quarter and the year to

March 1999 respectively.

Queensland - “Ability to Service Home Loans Improves” With the Brisbane median house price in the vicinity of $140,000 and all interest rates except bank fixed rates declining during the March quarter 1999, Queensland home-buyers took out more home loans at a higher average value compared to the

previous quarter. Despite a small drop in the median weekly family income, the State was one of the few where the average size of monthly loan repayment and the proportion of family income devoted to paying for the average home loan fell during the March quarter. Overall, the Queensland Home Loan Affordability Indicator rose marginally by 0.8% over quarter but was down 3.6% over the year to March 1999.

South Australia - “Number of New Home Loans Rise Almost 3%." Although the median house price in Adelaide fell during the March quarter 1999, the activity in the home loan markets was considerably higher than in the previous quarter. The number of new home loans issued increased 2.9% as all interest rates except fixed bank rates declined. Median weekly family income fell 1.1% and a rise of 5.1% in the average monthly repayment resulted in the proportion of family income devoted to meeting average loan repayments rising to 20.5%. The activity in the property market occurred despite falls in the SA Home Loan Affordability Indicator of 6.1% over the quarter and 10.2% over the year to March 1999.

Western Australia - “Lower Home Loan Affordability Indicator Belies Activity in the Housing Markets” The median house price in Perth rose 2,6% over both the quarter and the year to March 1999. Whilst all interest rates except bank fixed rates fell, the total number of home loans issued, increased 2.6%. This occurred despite a reduction in the median

weekly family income and an increase of 3.5% in the average size of home loan and a 5.4% increase in the average monthly mortgage repayment. The proportion of family income required to meet the average loan repayment increased to 21.7% and the WA. Home Loan Affordability Indicator fell 5.9% over the quarter and 9.7% over the year.

Tasmania - "Most Improved State in Terms of Home Loan Affordability” Over the March quarter, the median house price in Hobart rose 2.9% to $108,000. While all interest rates except bank fixed rates fell, the total number of new home loans issued rose almost 9% over the quarter. The Tasmanian median weekly family income increased 1.3%. Although the average size of a new home loan increased 1.5%, the average monthly home loan

repayment fell 3.8%. As a result, the proportion of family income devoted to servicing the average loan repayment fell to 18.7% and the State Home Loan Affordability Indicator improved 5.3% over the quarter and 1.4% over the year to March 1999.

Northern Territory - “Number of Home Loans Increase Despite Falling Affordability Indicator.” The median house price in Darwin did not change between the December quarter 1998 and the March quarter 1999. Median weekly family income declined slightly, but the average size of home loan increased 2.2%. However, average monthly home

loan repayments increased dramatically by 21.2%, causing the to rise from 14.6% to 17.7%. The effect was for the NT to decline 17.7% over the quarter and 11.1% over the year.

Australian Capital Territory - “Affordability of Home Loans in the ACT Declines.” The median house price in Canberra rose 1.9% over both the quarter and the year to March 1999. While all interest rates except bank fixed rates fell, the total number of home loans issued increased 12.9%. As median weekly family income declined marginally, the average size of home loan increased 2.2% and the average monthly loan repayment rose 1.4%. The proportion

of family income required to meet the average loan repayment rose to 14.3% and the ACT Home Loan Affordability Indicator fell 1.8% over the quarter and 8.1% over the year to March 1999.