ABS stats for home loans show declines
Loans for home construction decline in FY2022
Stripped of loans for established homes, the ABS home loan issuance stats reveal an extraordinary surge in FY2021, followed by strong declines in FY2022
Fri Sep 23 2022
General statistics about loans for homes tend not to really answer to the needs of the hardware industry. Those stats include a large number of existing homes trading owners. While that is important to the market in general (especially as regards to DIY and renovations), the most significant contribution for independent retailers and their suppliers comes from new builds.
In these statistics, HNN is concentrating on stats for loans obtained both to construct homes and for the purchase of newly constructed homes. These are viewed both in terms of the number of houses, and their aggregate value, and further broken down into those for owner-occupiers and those for investors.
The graphic which opens this article illustrates the percentage change in all building work done in the five major states. As this shows, while we're accustomed to looking at high growth numbers for dwelling construction, the overall picture for construction has not been quite so good - with the possible exception of Western Australia (WA) (though not on a net basis through the charted period).
The charts for loans are based on periods which run from August through to July (with July 2022 the most recent data available. We refer to these as periods (p), to p2021 is the period between August 2020 and July 2021.
New South Wales
Chart 1 shows the housing loans for New South Wales (NSW) taken out by owner-occupiers.
This shows what is a common theme across several of these charts, namely that p2021 was something of an exception as contrasted with p2020 and p2022.
Graph 1 on the chart shows a surge in the number of loans taken out for the purpose of house construction from around September 2020 through to July 2021, though numbers continued at an elevated level through to December 2021, before hitting lows in both January 2022 and April 2022. Graph 2 shows that the aggregate value of those loans more or less keeps pace with the growth in numbers through p2021, but in p2022 shows a relative increase, reflecting both market price increases, and increased construction costs.
In terms of numbers of loans for newly erected houses, p2021 follows the surge in loans for constructing houses through to December 2020, the falls steeply for January and February 2021, before resuming a similar patter to graph 1. Interestingly, though, when it comes to values, where the value of loans for house construction during p2022 is entirely above the level for p2020, for the erected house loans the valuation is much closer to that for 2020.
Chart 2 shows the same stats for house loans taken out by investors.
Graph 1 on this chart shows that while there was a moderate spike in March 2021, it was not until May 2021 that investor loans grew strongly for construction, a trend that continued to a peak in June 2022. Graph 2 shows that aggregate value continued very much in trend with graph 1.
Graph 3 of Chart 2 shows number of loans for erected homes taken out by investors. This begins with a surprising high number of loans from August through to December 2019. It's not really until a year later, in December 2020, that the graph shows a new surge in the number of loans, with a second, lower surge in March 2021.
For most of p2022 the number of loans remains subdued below past levels, and is particular low in January and February of 2022, with a low streak from April to July 2022. Graph 4 of Chart 2 shows the value of the investor loans for erected houses, and mostly follows the trends of graph 3.
Chart 3 details the loans taken out by owner-occupiers for houses in Victoria (VIC).
Graph 1 of this chart is a classic illustration of just how different p2021 turned out to be for the housing market in this state. In a trend that really ran from August 2020 through to August 2021, there is a very high arc in the number of loans issued for house construction, hitting a peak of 2700 in December 2020. Graph 2 shows aggregate value mostly tracking the number of houses, except for the second half of p2022, where the value tracks higher, indicating increased house prices.
Equally, it's interesting just how quickly activity reverts to past levels, with p2022 tracking close to p2020 from October 2021 onwards, though with a slight lift in May and June 2022 (perhaps as some house prices declined).
Loans for erected houses behaved quite differently, with the number of these remaining more in line with the past, until January 2021, with elevated levels continuing on to July 2021, as shown in graph 3. Again, graph 4 shows aggregate value closely following numbers, though the second half of p2022 shows elevated levels of value.
In terms of loans for investors, Chart 4 details those numbers for VIC.
Graph 1 shows something a market almost inverted from that for owner-occupiers in the state for house construction loans, with increased numbers only beginning in May 2021, and continuing through to July 2022. Aggregate values closely follow the same trends, as shown in graph 2.
Looking at the trends for recently erected houses in graph 3, there is the same steep fall for January and February 2020, as seen for NSW, followed by largely "normal" trends thereafter. It's interesting to note that investor loans for erected houses through the second half of 2022 have fared better in VIC than NSW. Again, aggregate values largely follow the same trends, illustrated in graph 4.
Queensland (QLD) shows a trend for loans issued to owner-occupiers for house construction that is very similar to that of VIC, as indicated by graph 1 of Chart 5.
As with VIC, there is a grand arc in numbers of loans for construction by owner-occupiers, reaching a peak of over 1800 in December 2020 and February 2021. That is matched closely by the aggregate value of those loans, illustrated by graph 2.
Graph 3 shows that the number of loans taken out by owner-occupiers for recently erected houses does not surge as much as that for construction. However, there is still a significant increase that begins in August 2020, and continues through to December 2021. After that, however, the level reverts to that for p2020. Graph 4 shows that while the aggregate value roughly follows the trend of graph 3, there is an increase in per loan value for much of p2022.
Chart 6 shows the stats for loan issuance to investors for QLD.
Graph 1 again duplicates some of the features of the same chart for VIC. The number of loans for constructions issued to investors for p2022 is above the historical level. As with VIC, that surge began in the second half of p2021, with a steady increase from February 2021 through to May 2021, then the start of higher levels that persist through to July 2022, albeit with a trough for January 2022. Graph 2 shows aggregate value largely tracking the increases and decreases in number of loans.
Graph 3 shows the number of loans issued to investors for recently erected houses. It's a marked feature of this graph that the number of loans deteriorated sharply from March and April 2020 through to July 2020, and remained at a subdued level through to February 2021. Since then, it has become a largely volatile market with sharp peaks in December 2021 and May 2021, but also deep troughs in January 2022 and April 2022. While graph 4 shows that aggregate loan values have tracked numbers, there are also some exceptions to this, notably in July 2020 and March 2021.
The sharp uptake of loans by owner-occupiers for house construction during p2021 is present in South Australia (SA) as well, though the big surge is delayed until February 2021 for the state. This is shown in Chart 7.
As graph 1 shows, the peak of over 950 loans was reached in March 2021. That surge lasted, in diminishing form, through until September 2021, after which the number of loans remained above that for 2020. Graph 2 shows that aggregate value of loans closely followed the numbers, though values seemed to have increased in the second half of p2022.
The peak for construction loans was echoed somewhat in loans for recently erected houses, as shown in graph 3. The surge began in February 2021, and continued through to December 2021. The peak was close to 200 loans issued in June 2021.
However, there was a partial collapse in this market in January 2022, which eventually saw loan issuance drop down to just 60 in April 2022, before recovering to over 120 in May 2022. As graph 4 indicates, aggregate loan value largely followed loan numbers.
Chart 8 shows house loan issuance for investors.
For construction loans, there was a comparatively mild surge from February 2021 to July 2021, with a peak of around 95 issuances in May 2021, as shown in graph 1. Starting with p2022, however, a new surge bean eventually reaching over 150 in March 2021, and 160 in May 2021. As graph 2 illustrates, aggregate value largely followed issuance numbers.
When it comes of loans for recently erected houses for investors, the comparatively small market creates a great deal of volatility. The only really outstanding feature from graph 3 are the peaks for August 2021, November 2021 and December 2021. Prices largely followed loan numbers, as shown in graph 4, except clearly for the August 2021 peak.
Western Australia (WA) shows a high rate of growth for home construction loans by owner-occupiers during p2022, as with VIC and QLD. This shown in graph 1 of Chart 9.
However, this is quite a late change, beginning in September 2020, and continuing through to August 2021. It features a steep fall in numbers in April 2021. From September 2021 there is a relatively steady decline in numbers, until in July 2022 it returns almost all the way to the number of loans issued in July 2020. Graph 2 shows that aggregate loan value largely tracks loan numbers.
The market for loans taken out by owner-occupiers for newly erected houses is substantially smaller than that for house construction loans, as graph 3 shows. The former shows something of an inverse relation to the latter. After a peak of over 260 loans in October 2020, from November 2020 to February 2021, as the construction loans peaked, the erected house loans remained under 200, then surged in March 2021, just before the construction loans fell steeply. Loans for p2022 indicate the same kind of gradual decline through to July 2022 as did the construction loans. Again, aggregate loan value is largely in-step with numbers of loans issued.
For house construction loans issued to investors, as shown by graph 1 in Chart 10, there is something of a unique pattern.
The number of loans issued begins to increase in October 2020, and effectively continues on smoothly through to April 2021, following a similar seasonal incline. In May 2022 (even as interest rates are rising) the number of loans reaches a new peak, followed by a higher peak in June 2022, then a steep decline in July 2022. It's interesting to note that at this time, the aggregate value of the loans does not follow those increases, peaking in May, but decreasing sharply for June.
There is a unique pattern for loans to investors for newly erected houses as well, as shown in graph 3. Growth begins in March 2021, and continues through to July 2022, except for a trough in January 2022. However, the aggregate value of these loans follows a complex pattern that would suggest a considerable surge in prices through p2022.
The two sharpest "takeaways" from these stats is about both how unusual p2021 (which closely follows FY2020/21) really was, especially for loans for home construction, and how quickly that influence has faded looking at p2022 in almost all states.
That sheds some light on the behaviour we've seen in many builders, those which have over-committed to house builds at prices predicated on lower costs of material supplies. It is possible that effectively, they've been trying to grab hold of a market that is fading as rapidly as it has arrived.
There is also a real question posed here, as to just how rosy a future the house construction industry can really look forward to. While various building industry organisations offer assurances that the backlog of work is so large that it will take until 2024 to effectively clear it, is there really any guarantee that demand will return during or after that time?