Home builders and big four banks are winners in November housing finance

There's evidence of increased investment property purchases.

Darryl Daté-Shappard

I started investing after finding a copy of Peter Lynch's "Beating the Street" in the English book section of a library in Japan, where I was living at the time in 1997. Seeing that regular people can find investment ideas just as easily as professionals, I used the philosophy of that book to invest in stocks in Japan, and later in Australia after moving in 2001. I also have experience in property investing, and went on to complete my masters degree in Applied Finance at QUT in Brisbane. I follow the investment style of Peter Lynch, Phillip Fisher and Warren Buffett-- knowing what you invest in, doing your homework to keep up with a stock's story and holding a healthy skepticism of what the stock market calls "value".

Published January 20, 2014 8:55 am AEDT

Investment property purchases are rising faster than owner occupied housing for housing finance, according to monthly trend estimates released by the Australian Bureau of Statistics (ABS) for November 2013. Lending continued to grow, with bank financed loans rising more than non-bank lending.

Trend estimates had the value of investment housing finance rising 3.0%, over the past 12 months to November 2013, which outpaced the 1.4% gain for owner occupied housing. When seasonally adjusted, owner occupied housing finance pulled ahead with a 1.9% increase and a 1.5% increase for investment housing finance.

Looking at the number of housing commitments, construction of dwellings rose the greatest for the 12 months to November 2013, up 2.3% seasonally adjusted. Trending downward, the purchase of new dwellings was -4.3% over the same period.

First home buyer commitments slid to 12.3% of total owner occupied housing finance commitments, down from 12.6%, but the average loan size for the group was up $1,900 to $298,000.

The banks are still the clear winners here, holding a clear majority of the total number of commitments. Buyers' interest in fixed rate loans is growing since the interest rate cut cycle has halted for now.

National Australia Bank Ltd. (ASX: NAB) has kicked off a campaign to attract borrowers by reducing its fixed rate terms. Amongst the big four banks, it also has some of the lowest variable rates. In 2013, it rose the most in share price amongst the big four, up 39%, followed by Australia and New Zealand Banking Group (ASX: ANZ) up 29%. Both Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA) had respectable 25% gains.

The ABS data for housing construction finance showed an increase, whereas finance for homes already built was down. It may be a case of new home purchases taking a breather after a strong run since late 2011. Still, homebuilders like Stockland Corporation Ltd (ASX: SGP) and AVJENNINGS LIMITED (ASX: AVJ) can benefit from this trend.

Mirvac Group (ASX: MGR) and Lend Lease Group (ASX: LLC) may get more of a boost in multi-unit dwelling construction, with recent trends of unit-dwelling approvals rising faster than house building approvals.

Of course, more new homes will drive revenues for building materials companies like Boral Limited (ASX: BLD), Fletcher Building Limited (Australia) (ASX: FBU), CSR Limited (ASX: CSR) and James Hardie Industries plc (ASX: JHX).

Foolish takeaway

"Slow and steady wins the race" is very true in real estate and construction. Trend watchers should keep wind of changes in property and not lose sight of how retail and discretionary spending in general fare this year.

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