Australian Property Market Surges During June Quarter
A report on the state of the Australian property market suggests that the Federal Government subsidy for first time home buyers has led to mortgage brokers writing more than $18 billion in home loans for the quarter ending June, representing an 18 per cent rise compared to the same period in the previous year.
The report authored by independent consultants Market Intelligence Strategy Centre says that home loans written by mortgage brokers during the June quarter amounted to $18.3 billion.
The amount of home loans written during the June quarter is the largest quarterly level the consultant has recorded since it began collecting data back in the year 2000.
“The results clearly demonstrate that the government first home buyer incentive often, enhanced by further state incentives), has turned the mortgage market, through brokers, around. Many brokers and lenders were run off their feet with surging demand … not just for first home buyers but also investors.” the report said.
The size of the average mortgage written during the June quarter increased by 8.6 per cent, and stood at $267,724, up from $246,626 in the previous year.
A spokesperson for mortgage broker Mortgage Choice said the firm was optimistic about the future and said that approvals for home loans in the June quarter had outpaced growth during the previous three quarters.
“We would expect that the September quarter will be on par with the June quarter, if not an increase on that June quarter in terms of approvals,” The spokesperson said.
Mortgage Choice also added that aside from an increase in first home buyer activity, there had been a “noticeable spike” in interest from those upgrading from their current home and those looking to invest in a second property over the last couple of months.
Last October as part of its fiscal stimulus package in response to the global economic slowdown the Federal Government increased its first time home buyer subsidy to $21,000 for newly built homes and to $14,000 for those buying an existing property.
The Federal Government grant will be reduced to $14,000 and $10,500, respectively, on Thursday, October 1.
ANZ led the Big Four banking groups in terms of proportion of home loans originated through a broker, with 50 per cent according to data provided by Mortgage Choice.
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Australian Fund Managers Mark Down Property Investments
Independent property research firm IPD has issued a report which suggests that capital values of Australian property have reached nearly two decade lows for the year ending June 2009 as investment fund managers mark down the value of their real estate assets.
The IPD and Australian Property Council index suggests that capital values across all real estate sectors plunged 13.3 per cent during the period, the largest drop in asset values since the 1991 recession.
“There is a clear move by the industry towards stronger governance and reporting, with many more organisations now valuing all of their assets each quarter,” Adrian Harrington, non-executive chairman of IPD Australia’s Board, said in a statement on Tuesday.
Of the 1,100 assets included in the IPD database, approximately 80 per cent were revalued in June, up from 60 per cent in the previous two years.
Real estate investment trusts (REIT’s) have taken the biggest hit, with Stockland Group, Australia’s second-largest property trust, reporting a loss of A$1.8 billion for the year to June.
The worst performing sector was office real estate, which returned a total of negative 9.6 per cent, whilst retail property posted negative 4.5 per cent in total return.
Despite the drop in capital values, IPD believes a bottom may either have been reached or reached shortly.
“The true test will be with the transactions of larger assets that are starting to occur what differences still remain between value and price,” John Garimort, director of IPD in Australia and New Zealand, said.
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Australian Property Market Continues To Recover
Further signs that the Australian property market continues to recover have emerged, with the average new mortgage in Australia reaching record highs in July of $345,000, showing that confidence in the property market is increasing.
AFG’s Mortgage Index has shown that average mortgage values have been rising since May, having reached a bottom of $339,000 in January.
The data shows that property prices based on average mortgage values in New South Wales were the highest, followed by Queensland and Victoria. The average loan size in each of those states is $407,000, $339,000 and $321,000 respectively.
The results of the survey conducted by AFG, also suggest that the popularity of fixed rate home loans has declined rapidly. The data shows that the number of fixed rate mortgages fell from 8.3 per cent in June to 5 per cent in July.
Mark Hewitt, AFG’s general manager sales and operations said Australia continues to see increasing confidence in the property market on a weekly basis.
“Recent reports of house price increases are stimulating the market as a whole, and encouraging investors in particular. That said, because interest rates remain at 40-year lows, we’d encourage buyers to take into account the fact that their mortgages will almost certainly cost more to service as the overall economy picks up,” he said.
Activity from investors remains strong, with 30% of all activity coming from that section, while first home buyers make up 19% of the mortgage market.
Mortgage Borrowers Not Switching To Fixed Rates In Large Numbers
Australian mortgage borrowers do not seem to be phased by the Australia’s largest mortgage lender raising its standard variable mortgage rate and there has been no en mass switch into fixed rate mortgages according to a mortgage broker.
At the start of June Commonwealth Bank of Australia increased the interest rate on its variable rate mortgages by 10 basis points citing higher funding costs. The decision was a very controversial one and was met with much criticism.
John Kolenda, executive director with mortgage broker Loan Group said that the company’s brokers had not received a noticeable increase in enquires for fixed rate mortgage rates, despite CBA’s decision.
“The lack of demand to switch to fixed rates indicated the majority of home owners believed they would be better off sticking to variable rates while the economy remained in decline,” Mr. Kolenda said.
Mr. Kolenda added that most economists he has spoken with believe that the Australian central bank the Reserve Bank of Australia (RBA) was likely to cut official interest rates further over the next 12 months. The official interest rate currently stands at 3.0 per cent.
Standard variable rates are roughly 5 per cent, which are their lowest level in half a century.
“The opportunity to lock in a long-term fixed rate in the low five per cent range has probably passed as the major banks have already significantly increased their fixed rates”.
Mr. Kolendra also made the point that many borrowers may have misgivings about switching from variable to fixed rates after having been caught out after doing the same thing prior to the economic slowdown and seeing interest rates cut by 425 basis points.
According to the Australian Bureau of Statistics, more than 125,000 people locked into fixed rates of more than eight per cent in the 12 months to August 2008.
“Those people then watched as the RBA reduced the cash rate by more than four per cent in response to the global financial crisis,” he said.
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Australian Property Market Heats Up Before Budget Announcement
The Australian property market has rapidly heated up with first time home buyers sprinting quickly to make or finalise their purchase due to fears that the Commonwealth Government of Australia ceases with the current regime relating to government grants when it announces its new budget today.
Data released by the Australian Bureau of Statistics shows that the percentage of first time home buyers hit a record high of 27.3 per cent in March beating the previous record of 26.5 per cent which was set during the months of January and February.
The Government has not signalled its true intention, often sending contradictory messages over the Federal grant scheme and whether it intends to continue with the scheme in its current form beyond the July 30th deadline.
As part of the $10.4 billion Federal stimulus package, grants for first time home buyers were doubled to $14,000 for the purchase of established homes and increased threefold to $21,000 for the purchase of new properties. The scheme has been the most successful component of the stimulus package with over 40,000 buyers since the scheme became operational back in October 2008.
The increase in March, marked the sixth consecutive monthly increase in first time home buyer numbers, and the total number of home loans increased in march by a greater than expected 4.9 per cent to 59,793.
Potential buyers have had the incentive of record low interest rates and substantial federal grants which has successfully enticed them into the property market. With the latest cut of 25 basis points, the cash rate has been slashed by 425 points since September, and now stands at half century all time lows.