While home loan providers have witnessed a rebound in investment loans, the share of investors in overall loan commitments has continued to contract, according to the latest figures from the Australian Bureau of Statistics.
The value of home equity loans to investors rose 1.4% in October, rebounding after falling 3.9% in September. Despite this slight increase, the proportion of loans to investors in overall housing finance fell to 28%, compared to 38% in the long term.
"After falling for 11 consecutive months since mid-2018, investor loans have reversed, increasing in four of the past five months," said Shane Garret, chief economist at Master Builders Australia .
Read also: Investors are slowly returning to the market
One explanation for the decline in investor share is the faster than expected growth of homeowners taking advantage of affordable housing prices and low interest rates.
Homeowner funding increased 2.2% on a monthly basis and 5.7% from the previous year. This indicates that homeowners are behind the recovery in housing prices.
In fact, the average size of homeowner loans increased by 1% during the month, with the average value of loans for the purchase of existing homes increasing by more than 2%.
"This rebound is driven by more flexible monetary conditions, which have allowed housing prices to recover rapidly in Sydney and Melbourne," said Maree Kilroy, economist at BIX Oxford Economics.
However, she said that momentum in established housing markets could lead to double-digit increases in median prices.
Tim Lawless, research manager at CoreLogic, said that improving the outlook for capital gains could attract more investors to the housing market.
"In addition, credit policies have eased and lenders are becoming more competitive for investment borrowers," he said.
Interestingly, the spread between mortgage rates and rental yields could cause the properties to be in a favorable cash flow scenario from the start of the purchase. In fact, the average interest rate on a three-year fixed mortgage for investors is 3.8%, just slightly higher than the capital's combined rental yield at 3.7%.
"The gap between fixed rate mortgages and gross rental yields has not been as narrow since at least 2005," said Lawless.
With that, he said that investor participation could increase in the coming year. However, as investors begin to strengthen their market presence, first-time home buyers are expected to decline.
"The trend in these two market segments is generally opposite: more investors, fewer first-time buyers and vice versa," said Lawless.
First-time home buyers recorded an increase in loan commitments in October. On a monthly basis, loans to first time home buyers increased by 1%. The gain becomes greater on an annual basis, increasing by 18.5%.
"The activity of first-time home buyers remains strong despite rising house prices. They now account for almost 30% of all buyers," said Tim Reardon, economist Chief of the Housing Industry Association.
Interest rate cuts, tax breaks and easing of loan rules will likely continue to have a positive impact on the market, he said.
"If these conditions persist, the market will stabilize in 2020, at levels much lower than in recent years," said Reardon.
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