Investors Returning to Market in 2010

The number of owner-occupied housing finance commitments in Australia fell 5.6% in November after a 1.9% drop in October. November's fall was close to our forecast for a 4.0% drop and comes amid the parring back of the First Home Owners Boost (FHOB) between October-December. This phasing out is seeing first-home buyers exit the market: the ratio of new loans made to first-home buyers dropped further to 22.1% in November, which is the weakest since the time when the FHOB first took effect in October 2008.

But even as first-home buyers exit the market, investors are still supporting the recovery. While investors still haven't entered the market in a significant manner, the value of investor finance has gradually trended higher since the start of 2009 so that the value of investor finance is 26.1% higher from a year ago.

There are still several factors that could support the housing market in 2010 even as we see weaker interest from first-home buyers. This includes the likely boost in household incomes received via the sharp rally in equities since March 2009, higher dwelling prices over the last year and the recent large creation of jobs in Australia. Meanwhile, population growth is currently running at its fastest pace in 40 years, indicating still imminent demand for housing.

Despite the recent falls, overall new home loans are still a hefty 22.2% higher since the FHOB took effect. We have already seen evidence that this increase has fed through to the construction side of housing and we also envisage a sharp housing construction boom this year. This in turn should help guide the Australian economy higher towards its long-term average of close to 3.5% per annum by end year.