The mortgage market is facing difficult times, with housing affordability reaching record lows. The current global economic uncertainty is exacerbating this situation. This report analyzes these trends and provides recommendation for providers.
Description
This report analyzes the outlook for the Australian property and mortgage markets. The report breaks down the market in terms of different customer segments, analyzes current trends, and forecasts future developments. Action points for mortgage providers are also included.Provides an in-depth discussion of the outlook for Australian mortgagesAnalyzes drivers of growth for different mortgage customer target segmentsDiscusses both long-term and short-term trends and advises how providers should anticipate these trendsUses a consumer survey of almost 2,000 Australians aged 18 and aboveAs a proportion of new lending commitments, first home buyer lending has fallen sharply since 2009. Between 2002 and 2009, first home buyers generally accounted for around 23% of monthly lending commitments. In March 2011, only 12% of lending commitments were for first time buyers.More theoretically, the value of an investment property should be equal to the sum of all future discounted net rental income, with the discount rate being proportionate to the expected risk of the investment. This is analogous to how the value of a share is defined as the sum of all future discounted dividends.There are some segments that will still be active in the forecasted upcoming subdued market. Refinancers will drive an increasing proportion of lending commitments. Downsizers and upgraders are also expected to account for a larger proportion of the market activity.What is the medium term outlook for the mortgage market, and why?Which segments will perfrom better than others?How should providers of mortgages target customers, and what should be the key points to consider when acquiring customers in these times?What proportion of mortgagors are experiencing financial stress, and how are the stressed mortgagors reacting?
Table of Contents
TOC
OVERVIEW
Catalyst
Summary
EXECUTIVE SUMMARY
The mortgage market may be entering a period of stagnation
Australia's mortgage market exceeds A$1.1tn but is slowing down
Investment property market developments could create downward price pressure
Despite spiraling property prices housing costs have been relatively stable
Some important factors sustaining property price growth have changed
Property prices will remain flat or fall in the medium term
A small but growing minority of Australian mortgagors face financial stress
The majority of Australian mortgagors are in good shape, but stress is growing
Mortgagors have increasingly cut back on spending due to mortgage costs
Renters also face financial stress, pointing to a more widespread malaise
The changing Australian mortgage marketplace will alter loan provider business models
The online channel and the financial crisis have spurred competition and will lead to a focus on efficiency
Providers need to be prudent given the falling market, especially for some target segments
THE MORTGAGE MARKET MAY BE ENTERING A PERIOD OF STAGNATION
Australia's mortgage market exceeds A$1.1tn but is slowing down
The Australian capital city property market has outgrown wages
The steady growth in the mortgage market has recently been rocked by the financial crisis and government stimuli
Prices are relatively stable but the number of transactions is falling
Low affordability continues to pressure first home buyers
The average first mortgage has grown much faster than average wages
There are indications that the increase in the FHOG did little to benefit buyers long-term
Continued weak first buyer interest provides a lackluster forecast
Investment property market developments could create downward price pressure
A large part of the property market is based on the expectation of perpetual gains
When the expectation of perpetual capital gains falters, there is a strong incentive to sell
The large proportion of investment properties in Australia could lead to wilder swings in prices
The Australian mortgage market will gradually adapt
Despite spiraling property prices housing costs have been relatively stable
Renting will become more common in the long term and a lower proportion of Australian households will own their houses outright
Some important factors sustaining property price growth have changed
Property prices will remain flat or fall in the medium term
SOME AUSTRALIAN MORTGAGORS CONTEND WITH STRESS
Australia has been resilient in the face of global uncertainty
The general economic outlook has been stable over the last year
First time buyer and investor purchasing intentions are surprisingly strong
Mortgage broker usage has increased slightly
A small but growing minority of Australian mortgagors face financial stress
The majority of Australian mortgagors are in good shape, but stress levels are rising
Mortgagors have increasingly cut back on spending due to mortgage costs
Renters also face financial stress, pointing to a more widespread malaise
THE CHANGING AUSTRALIAN MORTGAGE MARKETPLACE WILL ALTER LOAN PROVIDER BUSINESS MODELS
A competitive market will ensure a focus on efficiency
The online channel and the financial crisis have spurred competition
The financial crisis has made the mortgage market more homogenized
Fees and charges will become less important drivers of profitability
Providers need to be prudent given the falling market, especially for some target segments
The falling market will make some target segments riskier
Refinancers, downsizers and upgraders will become more important target segments
APPENDIX
Data tables
Methodology
Further reading
Ask the analyst
Disclaimer
TABLES
Table: Financial stress indicators are common among the lowest income quintile
Table: Employee weekly wages (A$) and property price index, Q2 2002 to Q2 2011
Table: Lending commitments (A$bn), January 1995 to December 1998 (part 1)
Table: Lending commitments (A$bn), January 1999 to December 2002 (part 2)
Table: Lending commitments (A$bn), January 2003 to December 2006 (part 3)
Table: Lending commitments (A$bn), January 2007 to December 2010 (part 4)
Table: Lending commitments (A$bn), January to June 2011 (part 5)
Table: Outstanding housing loans (A$bn), March 2002 to December 2005 (part 1)
Table: Outstanding housing loans (A$bn), January 2006 to December 2009 (part 2)
Table: Outstanding housing loans (A$bn), January 2010 to June 2011 (part 3)
Table: Monthly owner-occupier dwellings financed, January 1995 to December 1998 (part 1)
Table: Monthly owner-occupier dwellings financed, January 1999 to December 2002 (part 2)
Table: Monthly owner-occupier dwellings financed, January 2003 to December 2006 (part 3)
Table: Monthly owner-occupier dwellings financed, January 2007 to December 2010 (part 4)
Table: Monthly owner-occupier dwellings financed, January to June 2011 (part 5)
Table: Average first home buyer mortgage (A$000) and average employee weekly wage (A$), May 1995 to May 2011
Table: Average annual wages per average first home mortgage, 1995-2011
Table: Average mortgage size (A$000), January 2002 to December 2005 (part 1)
Table: Average mortgage size (A$000), January 2006 to December 2009 (part 2)
Table: Average mortgage size (A$000), January 2010 to June 2011 (part 3)
Table: First home buyer proportion of monthly owner-occupier lending commitments, January 2002 to December 2007 (part 1)
Table: First home buyer proportion of monthly owner-occupier lending commitments, January 2008 to June 2011 (part 2)
Table: Housing costs as proportion of gross income, 1994-95 to 2007-08
Table: Housing costs as proportion of total expenditure (A$), 1984 to 2009-10
Table: Housing-type segments, 1994-95 to 2007-08
Table: Wages per first home mortgage and interest payments to disposable income, 1995-2011
