First home buyers pass the baton to upgraders

Sunday the 13th of September, 2009 8 Comments »

Posted by Iden Money .

Posted by Infochoice 0n 11/9/09

The big worry for lenders in the housing finance market has been that when the strong push from first home buyers came to an end the market would lose its momentum and be back in the doldrums.

Housing finance figures released by the Australian Bureau of Statistics  this week suggest that first home buyer demand has indeed peaked.  After rising steadily in response to low rates and government stimulus first, home buyer share of all dwellings financed peaked at 28.5 per cent in May and fell back to 27.1 per cent in June and 25.7 per cent in July. Overall, the housing finance market softened in July. Total dwelling finance of $22.5 billion in July was down 2.3 per cent on the previous month.

However, there were positive signs. Westpac senior economist Andrew Hanlan pointed out in a note on the figures that “upgraders” continue to strengthen. Lending to so-called upgraders increased by 1.7 per cent in July and has climbed 26 per cent so far in 2009.

Upgraders are not a group identified in the official figures; Westpac calculates upgraders by removing refinancing from the ABS owneroccupied group.

The bank’s commentary says: “First home buyers responded to government incentives quickly and in large numbers – so much so that a reversal is now underway from unsustainable highs.

“Upgraders continue to respond to extremely expansionary monetary policy, with variable mortgage rates at their lowest since 1968.

“While the RBA has signalled an intention to lift rates from current lows, policy will remain expansionary for some time, with rates a long
way below average levels.”

The consensus among big bank economists is that rates will start to rise in the first quarter next year but there is a wide range of expectations as to how far rates will have risen by the end of 2010.  ANZ predicts that the official cash rate will move from its current level of three per cent up to 3.75 by September next year. Westpac predicts that the cash rate will start to move in the March quarter next year and will reach four per cent by the end of the year. The most bearish of the big banks on rates is Commonwealth Bank, which says it expects rates to remain on hold until the fi rst quarter of next year but then rise quickly to 4.75 per cent by the end of the year.

The economists have not ruled out a rate rise before the end of  the year. ANZ’s commentary says: “The probability of monetary policy tightening before the end of the year is rising. At this stage, we believe the RBA will need to see further evidence on how the household sector performs to make this decision. Should retail sales and employment data continue to hold firm in the coming months, then there is a serious probability that rate hikes could commence from November.”