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The latest lending statistics do paint a promising picture for property, but that shouldn’t be taken as permission for the Reserve Bank of Australia (RBA) to hike rates again in December, according to the Real Estate Institute of Australia (REIA).
Following the release of the latest data around lending from the Australian Bureau of Statistics (ABS), REIA president Hayden Groves highlighted the increase in first home buyers and investors as welcome, however noted that the new housing sector is continuing to struggle with building cost uncertainty.
“The latest ABS figures show first home buyers grew by 0.3 per cent in October, 6.8 per cent higher compared to a year ago,” he commented.
For first home buyers, the average loan size grew by 0.3 per cent to $507,000, while loan sizes for all owner-occupiers increased by 2.1 per cent in October.
“Overall, total housing rose 5.4 per cent to $26.7 billion, after a rise of 1.5 per cent in September and was 4.9 per cent higher compared to a year ago,” the president outlined.
He also raised that investor lending was 12.1 per cent higher than it had been one year ago.
While existing dwelling lending saw strong figures over October, especially in comparison to 12 months ago, Mr Groves pointed to the “worrying” trend that highlights new construction lending is down 19.5 per cent compared to a year ago.
Mr Groves said that “these figures indicate home buyers are still not feeling surety around building costs remaining stable”.
And while the president is generally optimistic around the “promising” investor and first home buyer activity, he is cautious of the impact of further rate movement.
“The main takeout is that the RBA need not gamble on another rate rise as the added cost is putting a halt to new supply,” he flagged.
Property pipeline “is now shrinking”
Alongside the lending data, building approvals also showcased the concerning trend in new home builds.
While new house building approvals did increase by 1.2 per cent across the month of October, the three-month horizon does not look as rosy, down by “11.2 per cent compared to the same quarter last year”, flagged Housing Industry Association senior economist, Tom Devitt.
Mr Devitt said the number of approvals is “around its lowest levels of the last decade”.
He noted it’s a different economic scene that’s at play now than when the RBA began lifting rates in May of 2022, when many home builders “had a significant pipeline of work under or awaiting construction”.
“This pipeline has kept Australians employed and the economy going for over a year, obscuring the impact of the sharpest rate hiking cycle in a generation.”
He subsequently warned: “This pipeline is now shrinking and in 2024 home builders will be starting construction on fewer new houses than at any time in the last decade.”
The economist said the current situation facing Australian builders is not an unexpected one, sharing that “we have known this was coming for over a year”.
He pointed to a number of leading indicators, including new home sales, housing finance, building approvals and consumer confidence as all being “depressed” all year.
“The problem is the RBA has been impatient in wanting to see progress in its lagging indicators, namely a rise in unemployment and a faster decline in inflation,” he quipped.
The economist is forecasting that “2024 will be the year that these lagging indicators start to reflect the full impact of what the RBA has done over the last year and a half”.
“The unfurling of global supply chains for home building materials and fuel will have eliminated most of Australia’s excess inflation by the end of this year.”
In conclusion, Mr Devitt expects “the RBA’s interest rate increases will suppress home building and spending across the broader economy next year by much more than would have been necessary to get inflation over the line into the RBA’s 2–3 per cent target range”.
ABOUT THE AUTHOR
Grace Ormsby
Grace is a journalist across Momentum property and investment brands. Grace joined Momentum Media in 2018, bringing with her a Bachelor of Laws and a Bachelor of Communication (Journalism) from the University of Newcastle. She’s passionate about delivering easy to digest information and content relevant to her key audiences and stakeholders.
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