Mortgage Applications see Highest Gains in Three Years

If you have been looking for home loans in Baldivis, Rockingham or Kwinana, you may have noticed that it is taking a little more time than usual. The reason is because demand for mortgages has risen more than anytime since June 2010.

The Numbers

Mortgage Applications see Highest Gains in Three YearsWhen measuring the volatility of the market, analysts like to use quarterly gains or losses as a measuring tool. In June, the amount of mortgage applications grew by a yearly rate projected to 6.9% for the June quarter. For comparison, the number in the March quarter was 1.9%.

The data came from Veda, a company that provides credit data. According to Angus Luffman, the General Manager of Consumer Risk for Veda, mortgage enquiries are an effective and accurate method of measuring demand in the housing market and rises in mortgage applications usually foretell rises in house prices within a maximum of nine months.

Luffman, like many other economists, is optimistic that improvements in housing market conditions may lead to a stronger housing market, helping to offset the temporary slowing of the mining boom.

The lowering of the RBA interest rate is being credited for much of the market movement. Currently, the interest rate is at 2.50%–an all-time low. Better yet, many are predicting at least one more decrease that would put the RBA interest rate at 2.25%. However, overall consumer demand, which is an indicator of consumer confidence, only grew by 3.9% in June, down from the March quarter in which demand grew and an annual rate of 4.7%. Meanwhile, personal loan applications, which were at an annual rate of 10.3% for the March quarter, lowered itself to 6.3% annual growth for the June quarter. Credit cards stayed at 1.3% annual growth.

What this Means to You

If the pattern goes as it usually does, we’ll see even more increased demand for home loans. There are a number of factors that are contributing to the rise in mortgage applications. Some are becoming more pronounced while some will correct themselves as the housing market rises.

In late 2012 and continuing into 2013, it was more expensive to rent a home than it was to buy one in over 70 suburbs. In other words, it was no more expensive to buy than it was to rent if someone could overcome the hurdle of the down payment.

This caused a lot of movement in the rental market, nearly tripling vacancies while many renters were defaulting on their leases by leaving early, choosing instead to buy their own homes. This particular factor will probably adjust itself back to where it is more expensive to buy than to rent. Rents are going down and housing prices are starting to creep back up.

Also, despite the recent downturn, the WA economy was insulated somewhat by the mining boom. A lot of people who had “sat on their money” for the last few years have decided that their income potential is stable enough to buy a house.

While the resource industry has undergone major cost-cutting moves in an attempt to respond to a newly-competitive market, there are still plenty of people with jobs in the mining industry; they have steady, stable incomes. This means that there are still a lot of people with money to spend who want houses.

After the resource industry is finished with cost-cutting measures, we could see the employment figures stabilise, resulting in more confidence among those who are left. In addition, many economists project that the mining industry and WA will display steady growth until at least 2030.

In other words, population and employment will grow and so will the demand for housing. That will also provide more jobs for the service sector and for the construction industry, as they continue to provide infrastructure for a growing WA.

What we are trying to say here is that for those who survive the temporary downturn in the resource industry, growth should eventually start back up. They are resetting the parameters for the industry now but after they have laid the new foundation, growth should resume.

What to do Now

Basically, if you are looking for another home, now is the time to put the wheels into motion. Interest rates are low while prices haven’t really risen yet. Within a year, we could see higher interest rates and higher housing prices, possibly by as much as 10%.

Anyone who can afford to make a move now should make their move now. Waiting until next year could cost prospective home buyers thousands of dollars. Call (08) 9527 1800 today to see if you qualify.