Analysts sceptical of housing credit numbers

http://www.morgij.com.au/analysts-sceptical-of-housing-credit-numbers/

This article was originally posted by Elizabeth Fry on AB+F, 5/2/2016.

Months after the government statistician, Australian Bureau of Statistics, admitted to under-reporting the number of owner-occupier mortgages and analysts are again convinced that its figures – this time showing a recent sharp slowing in investor home loans – are pure fiction.

According to UBS analyst, Jonathan Mott, it appears that the recent reduction in investor loan approvals has been completely offset by a pickup in owner-occupied home loans, which is hugely questionable.  In response to the dodgy official figures and a push from the prudential regulator, the banks have been digging through their mortgage books over the last few months and reclassifying their investor and owner-occupied loan portfolios.

According to Mott, while sorting out the back book appears to be reaching an end point, a more worrying trend is becoming evident in the front-book flows.  Upholding the fiction that the official statistics are correct, the June figures revealed a dramatic slowdown in investment property credit, from an 11.1 per cent peak down to 8.5 per cent in December.

‘Increasingly sceptical’

Taking care to strip out any reclassification affect, Mott checked the monthly growth figures before calculating that investor mortgage credit has indeed slowed sharply from 0.9 per cent to 0.3 per cent.  Incredulously, this apparent slowdown in investment property lending is almost exactly offset by a pick-up in owner-occupied borrowing.  “Over the same period, we note an offsetting acceleration in owner-occupied credit (from 0.5 per cent to 0.7 per cent) which appears questionable,” he said. “We are growing increasingly sceptical of the quality of the credit statistics.”

There appears to be increasing evidence that new customers may be stating their loan is for an owner-occupied property to avoid paying the higher costs.  Additionally, the Australian Prudential Regulatory Authority recently released quarterly housing approvals data for September, which also showed evidence of  a shift away from investment property. 

These approvals fell from 45 per cent to 35 per cent of overall approvals in the quarter, the sharpest fall on record. The growth rate in investment property approvals also saw a big swing in the quarter, from 28 per cent to -6 per cent.  ”However, what stands out to us is the significant pickup in owner-occupied housing approvals, which grew 23 per cent after 12 months of negative growth,” added Mott.

“Looking at the value of approvals, the lift in owner-occupied was so substantial that it offset the entire reduction in investor property approvals and led to an acceleration in total housing credit approvals.   Total total housing loan approvals remained solid as owner-occupied loans accelerated.

A phantom slowdown?

The apparent slowdown in investment property lending – and the almost exactly offsetting pick up in owner occupied – appears to be caused by customers and brokers defining the purpose of a mortgage.  “Some of these behaviors may be difficult to stem, particularly in third-party distribution networks,” said Mott. “That said, should this behavior continue unvetted, and household leverage rises further, we believe additional macro-prudential measures cannot be ruled  out.”

The analyst further said that, with so much noise in the investor and owner-occupied mortgage flows, he preferred to look at total mortgage credit at present, which appears to be peaking around 7.5 per cent year-on-year.  Incidentally, the latest quarterly figures show that the banks continued to ramp up mortgage lending.

Australia New Zealand Banking Group and Bank of Queensland grew mortgages the fastest – up 2.9 per cent and 2.5 per cent respectively.  Westpac Banking Corporation grew home loans by 2.4 per cent while Commonwealth Bank of Australia was the slowest of the major banks with a lift of only 1.3 per cent.