Investors are borrowing to build new dwellings rather than competing with owner-occupiers for existing properties, according to new housing finance figures released this week. The figures also show across-the-board growth in housing loans for both owner-occupied and investment property, existing homes and new construction.
Housing finance commitment numbers were up 1.1 per cent, stronger than the 0.5 per cent forecast. This firms the upward trend that has been in place since mid-2005.
Commitments for the construction of dwellings were up a further two per cent and there was a seven per cent increase in loans for new dwellings.
The latest Westpac Economic Release suggests that these results "point to housing construction possibly adding to economic activity earlier than we had anticipated in the second half of 2006."
The total value of housing finance was up 2.2 per cent, with investors up 2.0 per cent.
Senior Economist with Westpac, James Shugg, said that at this stage, however, it appears that investors are borrowing to build new dwellings rather than competing with owner-occupiers for existing properties.
Although there was a modest downward revision to January, the number of new loans in February rose more than expected to a new cyclical high.
The number of loans for the purchase of new houses jumped 7.1 per cent, reversing all of the prior three months of weakness, for an annual growth rate of 28 per cent. Also, finance for construction of dwellings was up 1.9 per cent - the fourth consecutive monthly gain for a cumulative rise of 7.2 per cent since October.
"These outcomes, along with latest rise in building approvals - also in February - suggest that home construction activity might make a renewed contribution to economic growth a little earlier than we expected in the second half of 2006," said Mr Shugg.
"Also of interest, the value of new home loans for investors rose 2 per cent in February. However we caution that this was mostly for the construction of dwellings for rent/resale."
This component is typically volatile - in fact, its February rise of 20 per cent merely reversed a January fall of 16 per cent.
Importantly, investor loans for established dwellings remained stagnant, so it seems unlikely that investors will be increasingly competing with owner-occupiers at auction just yet - and that should help keep the lid on house price inflation.
Loans for owner-occupiers reached a new record high in February. Home loans' numbers by state showed New South Wales down, again, for a cumulative loss of 4.3 per cent since December. Queensland and Western Australia outperformed again, with rises of 2.7 per cent and 3.8 per cent respectively, on top of gains in January. This continues the trend whereby the resource-rich states have tended to dominate the recent stronger economic data flow.
Mr Shugg concluded that this week's news will do nothing to undermine market chatter about a possible Reserve Bank rate rise later this year.
"However, we expect a benign Q1 inflation report on April 26 will significantly diminish rate rise speculation," he said.
