Banks have started raising rates, bringing in one of the toughest credit environments in recent years.
It’s been another tough week for the Abbott government. I guess it’s more like a month. Ok, it hasn’t been a great year.
And I’ll be honest, I kind of find it amusing to watch the pollies fuss and flounder. Maybe it’s a bit of schadenfreude. Maybe I’m so sick of being lied to that it feels like some sort of divine justice.
But before I fill my giddy cup on choppergate and who took what government car where, it’s worth remembering that our fixation on the amusing aspects of politics gives us the mess we’re in.
Government should be in the business of the future – of making decisions today that will allow us to live the lives we want.
But if we’re only watching the day-to-day mauling of personality politics, that’s what the media will give us. And that’s what the pollies will respond to.
And the things that actually matter – well no one’s got time for that.
Jon’s conspiracy theory #26 – the establishment will seek to make politics as petty and depressing as possible, so we all get caught up in the personal soap opera lives of our carousel of ‘leaders’. All the while, the things that actually matter slip by unnoticed.
And so Abbott and Team Australia have a long road ahead of them. But I’ve got a free kick to give Abbott. And if he plays his cards right, he could ride it right into the next election. And he doesn’t need to lift a finger.
Right now, housing affordability is on the front pages again (where it’s been for the last 15 years), and everyone’s worried about the kids, but all that looks like it’s about to fix itself.
Abbott could be the one to take credit for it.
Because remember what’s got everyone so upset. We all know that houses are expensive in Australia. But that’s only a tragedy if it’s locking younger buyers out of the market.
And for a while, that looked like what was happening.
If you tracked mortgage approvals, finance to first home buyers had fallen continuously from the FHOG spike, to it’s lowest level ever at the start of the year.
FHBs were just 10% of the market. The poor children.
But as I’ve said a few times this year, the numbers just didn’t add up. And in reality, what was happening was that first time buyers were jumping the PPR and going straight to property investment.
They were figuring that they wanted to get in on the market, but the places they could afford weren’t in areas where they wanted to live. And so they were deciding to keep renting in areas close to work and life, and buy and investment property somewhere else.
Get a toe-hold on that property ladder.
And so what we saw was a huge increase in the number of FHBs going straight to investment. It was unheard of 10 years ago. Now FHB investors are a third of the market!
And what that meant was when you added back in the FHB investors, the FHB share of the market was exactly where you’d expect it to be – and has been broadly stable for the past 5 years.
And so this story about first home buyers being crowded out by investors or by the Chinese just didn’t hold water.
Now I picked up on this at the start of the year, but so far I haven’t seen too many people talking about it.
But my suspicion is that this FHB investor boom is about to come to an end just as quickly as it started.
APRA is leaning on the banks to try and get lending to investors under control. And so it’s getting harder for investors to get finance. They’ve either got to stump up bigger deposits, jump through higher serving hoops, or pay a premium – half a percent in some places.
It’s a tough time to be an investor. (You don’t hear anybody crying tears for us though do you?)
But while banks have made it tougher for investors, they’re doing all they can to make up for it with owner-occupier finance. If you’re buying a PPR, none of these credit premiums apply to you.
So now think about that from the perspective of a first-time investor. There’s a pretty strong incentive here to tick a different box on your form and say that your purchase if for your PPR, not an investment.
(I know we’ve got a few mortgage brokers in the community here. Is this right? Would it be difficult to for a first timer to mis-represent an investment purchase as a PPR? I’ve heard of a few people doing it already… There’s not much stopping them right?)
And in a way it depends on whether cheaper rates offset any benefits from negative gearing. I suspect they would for FHBs – by a long way.
And so my bet is we’ll see First time investors evaporate, and first time buyers come bouncing back.
There’s only one month of data to go on so far, but it’s moving as I expect it would, with a fall in investor finance approvals…
… being offset by a pick up in FHB owner-occupier approvals:
So you can see where this is going, right? In six months we’ll have cooled the ‘investor frenzy’ and we’ll have helped first home buyers back into the market in strong numbers.
If I were Tony Abbott I’d be throwing down some policy now, anything, that claims to help FHBs into the market. It doesn’t matter what it is because in six months, it will have worked.
He can position himself as the PM who loves to help first home buyers. (What a guy.)
The way things are going for him right now, he’d be mad not to.
Do you reckon we’ll see a lot of data fence jumping? Will it make sense for first home buyers to report themselves as PPR instead of as investors?