New home lending falls to lowest level in three years

New home lending has fallen to the lowest level in three years as industry experts believe it’s time for the Reserve Bank of Australia to stop lifting interest rates.

HIA Chief Economist Tim Reardon said home buyers were pulling out of the housing market as higher interest rates made it harder to borrow.

“The number of loans for the construction or purchase of new homes fell further in October, down by 0.9 per cent, to its lowest level in over three years,” Mr Reardon said.

“Home buyers continued to retreat from the housing market in October, as rising interest rates diminished their borrowing capacity.”

According to Mr Reardon, all home buyer segments saw a decline in borrowing last month. 

“The total value of housing loans issued in October declined by a further 2.7 per cent leaving them 14.6 per cent lower than in the same quarter last year,” he said.

“The declines were seen in all market segments, with lending to firs- home buyers, owner-occupiers and investors continuing to fall in October.

“Lending to owner-occupiers fell to its lowest level in over two years.

“This slowing in housing finance data is consistent with other leading indicators, such as HIA’s New Home Sales Survey, which shows sales have fallen by 37 per cent in the four months to October.”

According to the Australia Bureau of Statistics, the number of loans for the construction or purchase of new homes declined in Tasmania (down 14.6 per cent), Queensland (down 0.7 per cent), South Australia (down 0.3 per cent) and Western Australia (down 0.1 per cent), while increases were seen in the Australian Capital Territory (up 201.8 per cent), New South Wales (up 10.3 per cent), Victoria (up 4.4 per cent) and the Northern Territory (up 3.7 per cent).

Mr Reardon said if the RBA continued to raise the official cash rate, the economy could be impacted.

“The RBA has already undertaken its steepest hiking cycle in a generation, lifting their benchmark cash rate by 2.75 per cent in just six months,” he said.

“Further hikes would deepen and prolong the trough in building activity that is emerging.

“There is a risk that the RBA will go too far and need to cut interest rates again to support employment across the economy.

“The risks to household and business finances from such an aggressive hiking cycle are clear. 

A deep and prolonged trough in home building activity will jeopardise the housing industry’s ‘soft landing’.”

Mr Reardon said large swings in the official cash rate in recent years doesn’t lead to stability in the construction industry.

“The RBA will not restore the economy to stable growth by putting the building industry through boom-and-bust cycles,” he said.

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Rowan Crosby

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

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