Queensland props up otherwise grim lending, building activity nationally
Australians are borrowing less and builders are seeing a fall in dwelling approvals as households tighten their belts to contend with high interest rates.
Investors continue to pour into the Queensland property market but elsewhere in the country the picture is less rosy.
Nationally, the value of new loan commitments for total housing fell 1.2 per cent to $24.2b, after a fall of 1.6 per cent in June. It was 14.1 per cent lower compared to a year ago.
The picture was worse for owner-occupier housing, which fell 1.9 per cent to $15.6b and was 17.5 per cent lower compared to a year ago. Investor housing fell just 0.1 per cent to $8.6b and was 7.2 per cent lower compared to a year ago.
The latest Australian Bureau of Statistics (ABS) data showed that investor loans in Queensland were propping up the rest of the country.
In July 2023 in seasonally adjusted terms for investor housing, the value of new loan commitments in Queensland rose 6.8 per cent, whereas in Victoria fell 2.6 per cent, in New South Wales fell 0.8 per cent, in South Australia fell 2.6 per cent, in the Australian Capital Territory fell 6.0 per cent, Tasmania rose 2.3 per cent and in Western Australia it fell 1.4 per cent.
Real Estate Institute of Australia (REIA) President, Mr Hayden Groves, said the latest ABS lending statistics indicate interest rates hikes need to cease with housing loans continuing to fall.
“There’s little doubt Australians are struggling in the face of rising interest rates and inflation.
“The latest ABS CPI indicators shows that inflation is easing, further cementing our view that market inflationary pressures have settled down,” he said.
Mish Tan, Head of Finance Statistics, ABS, said, “The value of new housing investment loans in Queensland rose 31 per cent since February 2023. In contrast, other states and territories had more mixed results.”
The value of owner-occupier housing loan refinancing between lenders rose 4.9 per cent to a new record high of $14.6 billion in July but Mr Groves said anecdotal feedback suggests this may be partly driven by a portion of refinancing applications being lodged before lenders ended attractive cashback offers expired on 30 June.
Property prices may slide as a result of the wave of fixed rate mortgages switching to variable, according to Maree Kilroy, Senior Economist for Oxford Economics Australia.
“Property price growth continued in August, but risk surrounds the longevity of this rebound.
“Listings have crept northwards for Sydney and Melbourne in recent months.
“We expect a lift in pressured sales through this financial year as the wave of fixed-rate mortgages continues to roll over, although the magnitude of this uplift remains uncertain but mild price corrections remain a possibility for some cities from the end of 2023,” she said.
Refinancing continues to set new records
Borrowers continue to pursue a better deal from lenders.
A record $21.5 billion in loans were switched to a new lender in July, which is up 5.4 per cent from the prior month and is 21.8 per cent higher than the same time last year.
With the higher interest rates, borrowers are also starting to consider fixed rate loans in greater numbers.
Canstar’s finance expert Steve Mickenbecker said existing borrowers were spared in April, July and August from further cash rate rises, yet there’s more pain on the way as rate rises continue to flow through to mortgage repayments.
“There is still a huge population of borrowers who have yet to experience the bitter taste of a rate increase,” Mr Mickenbecker said.
“Fixed rate lending rocketed up two years ago when rates were around two per cent, and every month for the next year or so a mass of borrowers will move to a variable rate with repayments lifting by around 60 per cent.
He said the appetite for fixed rate loans is starting to rise, with fixed rates accounting for 9.7 per cent of new lending in July having been as low as 4.0 percent in recent times.
The average two-year fixed rate is now 0.36 percent below the average variable rate and borrowers are taking advantage of the immediate rate cut and the security of two to three years immunity from rate rises.
Housing affordability ‘lowest since GFC’
HIA Senior Economist Tom Devitt said the decline in the number of loans issued for the purchase or construction of new homes (down 9.7 per cent in July 2023) was its lowest level in 15 years.
“This is the weakest monthly performance since the Global Financial Crisis and leaves the three months to July 31.7 per cent below the same quarter last year,” Mr Devitt said.
“The previous year of interest rate increases from the RBA has compounded the surge in construction costs during the pandemic, drying up the pipeline of new homes awaiting construction around Australia.
“This has all but guaranteed a decade low trough in detached house commencements for the coming year.
“A recovery from late next year should be supported by strong market fundamentals, including record population growth, acute shortages of rental accommodation, and a strong labour market.
“The recovery will, unfortunately, be limited by the deterioration in housing affordability, which will only exacerbate the housing crisis across Australia.
“Purchasing a home is the least affordable it has been since just before the GFC, 15 years ago.”
