13/5/2014: Q1 2014 Mortgages Approvals Data: There Is a Rise, But...

Undoubtedly, you heard much about the latest IBF data on mortgages approvals showing huge increases in lending in March 2014 compared to March 2013. But are these increases as dramatic as the IBF claims?

Well, let's take a look at the data:

• In Q1 2014, total number of mortgages approved for house purchase as opposed to remortgaging was 4,357 which represents a large increase of 55% y/y. Remortgages approved rose to 334, up 18% y/y. And total number of mortgages approved is up 51% to 4,691. Sounds impressive, until your remember that November 2012-April 2013 was the period of huge volatility due to changes in tax breaks on house purchases. But more on this point below.
• By value, total mortgages approved in Q1 2014 rose to EUR782 million, or 56% up on Q1 2013. House purchases mortgages value was at EUR750 million, up 58% y/y and remortgaging was up at EUR32 million or +19% y/y.
• Average mortgage issued for house purchase purpose stood at EUR172,027 which is up 3% y/y, average re-mortgaging loan was EUR93,954 or down 1% y/y. So average mortgage issued for both purposes was EUR136,854 which is up 3% y/y.

Two charts to illustrate above numbers:

Note two things from above chart:

1. With such a large jump in March, number of mortgages approved is still barely above the trend line. Which might be a sign of solid technical support for further upside.
2. Average mortgage value, having risen slightly above the trend line is still consistent with downward pressure on mortgages issued. Things are still solidly trending downside here.

Note to the above chart: we are bang-on the trend line in March, so nothing surprising in the rise - it is in line with longer term trend. The series continue to show support to the upside, which is a good news.

But here is the kicker. Coming back to that problem period of November 2012 - April 2013, we have a pesky little problem: how do we compensate for the one-off change in mortgages issuance that took place due to changes in taxation. One way (pretty much the only way) is to compute trend and use it to replace the actual outruns in these 'troublesome' months. I've done this before, so you will be familiar with the chart below:

Here's the thing: in IBF data we have a 53% rise in house purchase mortgages approved in March 2014 y/y. Adjusting for the one-off tax changes yields a much shallower rise - of 8.2%. Ditto for value data: IBF data shows 50.3% rise, but adjusting for volatility induced by tax changes, we have a 5.4% rise.

Still, nice bit - there is a rise...

28/3/2014: 'Recovery' in Mortgages Lending... Back to 1995...

In previous post I have shown that IBF mortgages approvals data is primarily driven by the excessive volatility recorded at the end of 2012 - beginning of 2013, thus skewing the entire result for February 2014. The details here: http://trueeconomics.blogspot.ie/2014/03/2832014-irish-mortgages-approvals.html

However, we can also look at quarterly data and extend the series to cover periods before IBF data became available. Based on CSO's heavily lagging (the latest we have is Q3 2013) series for House Loans Approved and Paid and extending it with IBF data for Q4 2013, we have data on the issue of number of loans approved and their value from Q1 1975 through Q4 2013. We can also use January-February 2014 data from IBF to estimate Q1 2014 with relative accuracy.

Here are the results:

The argument is that January-February data and indeed data for the later part of 2013 shows improvement in the markets, and even recovery in the markets.

In the last 2 quarters, based on IBF data, there were around 4,510-4,530 house loans approved. This represents 8th lowest quarterly result for the entire history. This also represents lower levels of lending than in Q2 and Q3 2013. Prior to the onset of the crisis, there is not a single quarter on record when there were fewer new loans issued by numbers.

In terms of volumes of lending, without adjusting for inflation, things are only marginally better. Volume of lending over Q4 2013-Q1 2014 averaged at EUR809 million per quarter. This is comparable (but slightly lower) than levels of lending attained in Q4 1995-Q1 1996.

As you can see from the chart, you need to have pretty vivid imagination to spot any recovery in the above series.

28/3/2014: Irish Mortgages Approvals: February 2014

There were some boisterous reports in the media today about the latest IBF data on mortgages approvals in Ireland, covering February 2014.

Here are the facts, some of uncomfortable nature for the 'property markets are back' crowd.

1. Year on year, mortgages approved for house purchases rose 49.5% which, on the surface, is a massive nearly 50% jump, suggesting huge improvement in the markets (see below on this).
2. However, 3mo average approvals through February 2014 are down 16.2% on 3mo average approvals through November 2013. Which suggests that things are still running slower in recent months than they did before.
3. Top-up mortgages approvals have declined: down 6.6% y/y and down 27.3% on 3mo average basis compared to previous 3mo period.
4. Average value of mortgage approved for house purchase is up 6.5% y/y, but it is down 5.4% for 3mo average through February, compared to 3mo average through November 2013. So mortgages being approved do not support price increases in recent months. Or put differently, mortgages being approved afford lesser LTVs on homes.

Chart to illustrate:

Key takeaways from the chart above:

• Number of new mortgages approved is running well below the trend, so improvement in February is driven by something other than market growth. Instead, it is driven (as argued below) by extraordinary volatility in approvals around the end of 2012 - beginning of 2013, which was down to expiration of tax breaks at the end of 2012. 
• Average mortgage approved is on-trend and the trend is down not up. So things are getting worse, not better.

Next, volume of lending:

1. Total volume of loans issued for house purchase went up 59.1% y/y in February 2014, but
2. 3mo average through February 2014 was down 20.9% on 3mo average through November 2013. In fact, February 2014 lending was the second lowest level over 10 months, with the worst recorded in January 2014. The start of this year is worse than any 2 months period since January-February 2013, which were distorted by end of tax break in 2012 and stripping these out, this years first two months are the worst since May 2012.

Key takeaways from the chart above:

• February 'improvement' puts us below trend and within the general trend direction, so the reading is weak, but consistent with upward trend.

Now on to the main bit: What happened to drive February figures so dramatically up in y/y terms? The next chart explains in full (click on the chart to enlarge):

Key takeaways from the chart above:

• Statistically-speaking, all of the massive increase y/y in lending for house purchases in Ireland recorded this February is down to huge distortion generated in the data by the end of tax breaks in December 2012. There is no other story to tell.

31/10/2013: IBF data on Mortgages Approvals: September 2013

Having just covered data on Residential Property Prices here (http://trueeconomics.blogspot.ie/2013/10/31102013-irish-residential-property.html), time to also update the data from the IBF on Irish mortgages approvals.

Excluding mortgages top-ups, lending for house purchases improved in September, with total of 1,544 new mortgages approved, up 10.4% y/y. Cumulative 3mo issuance of mortgages is now up 11.5% on previous quarter and 13.4% up y/y.

Average mortgage approved, however, stood at EUR174,302 in September, down 4.78% y/y. 3mo average mortgage approved was down 0.12% on previous quarter and down 3.69% y/y.

Year-to-date (Q1-Q3) cumulative number of mortgages approved rose 7.5% y/y while average mortgage approved by value fell 2.49%.

As the result of the above, total value of mortgages approved stood at EUR269 million in September, up 5.08% y/y. Q1-Q3 volume of mortgages approved rose 5.12% y on same period 2012.

So overall, reasonable gains, but off extremely low levels.