Lending to build new homes slows down

Rising interest rates continue to weigh on housing finance, with new data from the Australian Bureau of Statistics showing a decline in August.

The value of new loan commitments fell 3.4 per cent for housing in August, according to the ABS, with loans for new home construction falling 4.5 per cent.

Housing Industry Association Economist, Tom Devitt said higher mortgage rates have been weighing on borrower sentiment.

“The RBA’s tightening cycle has pushed down the total value of housing loans by a further 3.4 per cent in August,” Mr Devitt said.

“The decline in August brings the value of housing loans to its lowest level in almost two years, down by 15.4 per cent on three months earlier.

“The number of loans for the construction or purchase of new homes also declined by 4.5 per cent in August, to its lowest level since the March 2020 – the first month of the pandemic in Australia.”

Mr Devitt said the record increase in interest rates looks like it will end the construction boom.

“Today’s data is consistent with other leading indications, such as HIA’s New Home Sales Survey, showing new home sales dropped in July and August in response to higher interest rates,” he said.

“If these trends are sustained, which is expected, then the 2.25 per cent increase in the cash rate so far will have brought this pandemic building boom to an end.

“There is still a significant volume of work under construction that is driving economic activity across the economy and keeping the unemployment rate at exceptionally low levels.

“When this pool of work is completed, the full impact of this rate rising cycle will emerge.”

According to Mr Devitt, if the RBA tightens rates too far, it could risk a slowdown in the economy.

“There remains a risk that this volume of ongoing work will obscure the adverse impact of rising interest rates,” he said.

“These treacherous lags that characterise this housing cycle could result in the RBA weighing too heavily on household finances and jeopardising the housing industry’s future soft landing.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.