The housing sector is hot with housing “churn” increasing and house prices rising. March 2014 credit data from APRA (Australian Prudential Regulation Authority) and the RBA (Reserve Bank of Australia) shows housing credit growth is up by 5.9 percent calendar YTD, driven by investor and owner occupied housing credit growth – up by 7.5 percent and 4.4 percent respectively.

While there is clearly a relationship between activity and low interest rates, borrowers’ personal circumstances such as age, stage of life, changes in employment and family status and attitudes to major social issues seem to drive owner occupied housing and investor housing credit growth more than the interest rate cycle, per se.

Nielsen’s Consumer & Media View (CMV) service regularly surveys people aged 14+ nationally on their attitudes to money including loans, realty and what the consumer thinks about major social issues which might affect loan origination or reassessment. In 2013, ten percent of the population indicated it was likely they would take out a new or existing (refinancing) owner occupied home loan in the next 12 months. This represents a 1.5 percent increase (+6.1 percent in CY12) in the number of new or existing owner occupied home loan commitments in 2014 compared with 2013.

A similar intent was evident amongst investors. Approximately seven percent of the population indicated it was likely they would take out a new or existing (refinancing) investment home loan in the next 12 months. This represents a 4.2 percent increase (+ 11.2 percent in CY12) in the number of new or existing investor home loan commitment over the next 12 months.

Key Factors Driving Housing Credit Demand

Perhaps the most interesting insight from the survey is what factors drive interest in the housing market and therefore housing credit. Rising house prices are seen as a driver of housing credit growth when in fact they are an outcome of demand outstripping supply. So what is driving demand?

When respondents were asked about what would influence them in choosing or reassessing (refinancing) an owner occupied home loan, a change in marital status was the highest influencing factor (24%), followed by job redundancy (20%), job promotion (17%), having children (9%), and children leaving home (3%).

Honing in on the 25-39 year old demographic segment, accounting for roughly half the activity in the owner occupied home loan market, the key influencers are different. Job promotion (27%) came out on top, followed by job redundancy (26%), and a change in marital status (24%). Having children (14%) and children leaving home (2%) were less important.

Job promotion and marital status are also the most important factors driving home loan investment lending amongst those employed in upper white collar occupations. Perhaps a useful leading indicator of future lending activity might be the number of promotions advertised in the AFR, Seek, LinkedIn etc from professional services organisations, marriage, divorce and unemployment statistics among white collar workers!

Who is Driving Lending Recovery in Housing Investment?

Owner occupied home loans:

• The 25-39 year old segment accounts for almost half (49%) of intended new or existing loans in the next 12 months. They are 86 percent more likely than the average loan applicant to take out a loan in the next year. 
• First home buyers are most likely to fall in the 18-24 year old age group, which accounts for just 11 percent of intended new or existing loans in the next 12 months. This group is eight percent less likely than the average applicant to take out an owner occupied home loan in the next year.

Investors:

• The largest demographic group is again the 25-39 year old segment, accounting for 47 percent of intended new or existing investment home loans in the next 12 months. This group is 80 percent more likely than the average loan applicant to take out a loan in the next year. 
• The 18-24 year old demographic (first home buyers) account for 13 percent of intended new or existing loans in the next 12 months. Unlike owner occupied home loan intentions, this group is three percent more likely than the average applicant to take out an investment home loan in the next year.

Upper White Collar Professionals:

• In both home loan market segments, growth in lending is being driven by applicants classified within the upper white collar occupation group (Professionals, Managers etc).
• This group accounts for 44 percent of intended new or existing owner occupied home loans in the next 12 months and is 68 percent more likely than the average loan applicant to take out a loan in the next year. 
• In the investor home loan market, this group accounts for 47 percent of intended new or existing investor loans in the next 12 months and is 78 percent more likely than the average applicant to take out a loan in the next year.

The Influence Interest Rates have on Demand for Housing Credit

The banks might tell you demand for housing credit follows the basic laws of supply and demand, that is - demand is higher at lower interest rates. While there is a causal relationship between interest rates and housing credit demand, other factors discussed above need to be present to explain behaviours. Interestingly, when asked what was the most or second most important social issue in Australia, only one in five (22%) of people intending to take out an owner occupied and or investor loan in the next 12 months cited interest rates. Of more importance was the health of the economy with 41 percent citing it was the most or second most important social issue in Australia.

Outlook for the Remainder of 2014

We have surveyed demand for owner occupied and investor home loans (by number not value) for the last 10 years, and based on our survey across 2013 we would expect growth in the number of owner occupied homes loans to approximate 1.5 percent in 2014 compared to the 12 percent growth recorded to March of this year.

Similarly we would expect growth in the number of investor loans to approximate 4.2 percent in 2014. (Note: there are no ABS statistics on the number of investor loans, just value which is up 31% to February this year).

The graph below shows the relationship between percentage change in the number of owner occupied home loans as per the ABS and the percentage change in our survey forecasts for the period 2008-14E. With the exception of 2010 which was when the global financial crisis (GFC) started to affect Australia (post monetary and fiscal intervention), there is a good directional fit between annual changes in intentions and changes in underlying activity.