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New housing lending continues to drop

The value of new housing lending fell in January for the second consecutive month, according to the latest Australian Bureau of Statistics (ABS) Lending Indicators.

A total of $25.12 billion in new home and investment property loans were taken out in January, down 3.9 per cent from December. 

Owner-occupiers that were the least active in the market in January, dropping 4.6 per cent over the month, down to $15.91 billion in loans settled in January. 

Lending to investors over the same period fell by 2.6 per cent, with $9.21 billion in loans written in the new year. 

However, investment lending was up 18.5 per cent over the year. 

The value of loans to first home buyers also fell 6 per cent over the month to $4.5 billion in January. 

But similarly, with investors, first time buyer activity was up 13.2 per cent compared to January 2023.

Canstar notes that the jostling in activity in recent months points to upgraders and downsizers holding out for rate cuts to maximise their borrowing power while investors and first home buyers battle it out for current market stock. 

“The value of new lending in recent months being up, down, flying around signals that borrowers believe the recovery of housing prices over the past 12 months is unlikely to reverse and that now is the time to jump in,” Canstar lending expert, Steve Mickenbecker, said. 

“The biggest recovery is with first home buyers, up 13.2 percent in a year, and investors up 18.5 percent. 

“These are the groups that add to demand for housing stock and the overall level of debt in the property market. 

“The fear of missing out is a prime motivation for first-time buyers and seasoned investors, and rising prices drive them to move early. 

“Upgraders and downsizers are not up for the year at all, with owner occupier numbers bolstered by first home buyers. 

“Upgraders, as both buyers and sellers, are less likely to pile into the market until interest rates fall, thus maximising their borrowing capacity to move on up.

“Meanwhile, downgraders will see rising prices as an opportunity to maximise their bank account balance after the switch and hold out for a bit more upside.”

But the Real Estate Institute of Australia said the figures showed that housing affordability continued to be a concern for first home buyers, with the ABS figures showing the number of owner-occupier first home buyer loans fell 6.9 per cent in January 2024. 

While it was 4.4 per cent higher compared to January 2023, the slowdown reflects the impact of rising interest rates and economic hardship, REIA President, Leanne Pilkington said. 

“The value of these loans fell 6.0 per cent in the month, but was 13.2 per cent higher compared to a year ago,” she said.

“In original terms, the average loan size for a first home buyer loan rose from $485,000 to $514,000 over the year.” 

Ms Pilkington said that with the cash rate sitting at 4.35 per cent by December 2023, it comes as no surprise that housing affordability for mortgagees is getting worse. 

According to REIAs latest Housing Affordability Report (HAR), nationally, housing affordability has declined a substantial 2.7 percentage points over the quarter, and the average household is now spending 47.7 per cent of their income on mortgage repayments. 

Ms Pilkington said housing affordability in New South Wales, Victoria, South Australia, Tasmania and the Australian Capital Territory (ACT) is at its lowest point in 20 years.

”The ABS figures show that although owner-occupier lending has fallen for two months in a row, the growth in trend terms was 1.5 per cent over the year,” she said.

“The number of refinanced owner-occupier home loans between lenders fell 7.6 per cent and was 30.8 per cent lower than a year ago.”

HIA Chief Economist Tim Reardon said the RBA’s rate hiking cycle had caused consumer confidence to drop and, consequently, for home buying activity to fall.

“Lending for new homes was at record lows in 2023, and this downward trend continued into the new year,” Mr Reardon said.

“This leaves the number of loans for new dwellings down by 8.7 per cent in the three months to January 2024 compared to the previous year.

“This is consistent with other leading indicators of home building activity, such as new home sales and building approvals which continue to show a slowdown in 2024.

“The RBA’s rate hiking cycle caused consumer confidence to decline and home buying activity to consequently fall.”

But Mr Reardon said the decline in lending was not consistent across jurisdictions, with the slowdown most evident in NSW and Victoria, due to the higher cost of delivering a new home in these markets.

“It now takes 2.5 average incomes to service a typical mortgage in Sydney,” he said. 

“Western Australia, on the other hand, is continuing to show signs that it is out of sync with the rest of the economy.

“This sees new home lending in Western Australia up by 23.2 per cent compared to the previous year. 

“Strong income growth, employment growth and relatively more affordable homes are offsetting the adverse impact of the rise in the cash rate.”

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.