Housing Finance Values Reach Record Highs
It follows the eighth consecutive month of growth.
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The value of new loan commitments for housing has grown for the eighth consecutive month, reaching another record high across the country according to statistics from the Australian Bureau of Statistics’ January 2021 Lending to Households and Business figures and the Real Estate Institute of Australia (REIA).
The report shows that new loan commitments for owner-occupier housing rose 10.5% in January and follows a 44.3% rise for the past 12 months. A rise was seen in all states and territories, with the exception of the Norther Territory.
Further, the value of new loan commitments to owner-occupiers rose 10.9% which marks the largest monthly increase since August 2020.
According to Adrian Kelly, President of the Real Estate Institute of Australia: “The number of owner-occupier first home buyer loan commitments increased by 9.6 per cent for the month and is 70.8 per cent higher than twelve months earlier. This is the highest level since May 2009, when the Commonwealth Government’s response to the GFC included the temporary increase in the first home-owner grant.”
Owner-occupier first home buyer loan commitments accounted for 36.5 per cent of all owner occupier commitments excluding refinancing.
Further, investors had also increased their activity with loans also increasing for the eighth consecutive month.
“The value of loan commitments for investor housing increasing by 9.4 per cent for the month, the largest rise since September 2016, and 22.7 per cent for the year on the back of improving rental market conditions. The largest increase in the value of new loan commitments to investors was in Victoria with an increase of 12.9 per cent in January,” added Mr Kelly.
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Mortgage holders should brace themselves for more pain as the Reserve Bank of Australia board prepares to meet tomorrow for the first time this year.
Most economists and the major banks are predicting a rise of 25 basis points will be announced, although the Commonwealth Bank suggests that the RBA may take the unusual step of a 40 basis point rise to bring the interest rate up to a more conventional 3.5 percent. This would allow the RBA to step back from further rate rises for the next few months as it assesses the impact of tightening monetary policy on the economy.
The decision by the RBA board to make consecutive rate rises since April last year is an attempt to wrestle inflation down to a more manageable 3 or 4 percent. The Australian Bureau of Statistics reports that the inflation rate rose to 7.8 percent over the December quarter, the highest it has been since 1990, reflected in higher prices for food, fuel and construction.
Higher interest rates have coincided with falling home values, which Ray White chief economist Nerida Conisbee says are down 6.1 percent in capital cities since peaking in March 2022. The pain has been greatest in Sydney, where prices have dropped 10.8 percent since February last year. Melbourne and Canberra recorded similar, albeit smaller falls, while capitals like Adelaide, which saw property prices fall 1.8 percent, are less affected.
Although prices may continue to decline, Ms Conisbee (below) said there are signs the pace is slowing and that inflation has peaked.
“December inflation came in at 7.8 per cent with construction, travel and electricity costs being the biggest drivers. It is likely that we are now at peak,” Ms Conisbee said.
“Many of the drivers of high prices are starting to be resolved. Shipping costs are now down almost 90 per cent from their October 2021 peak (as measured by the Baltic Dry Index), while crude oil prices have almost halved from March 2022. China is back open and international migration has started up again.
“Even construction costs look like they are close to plateau. Importantly, US inflation has pulled back from its peak of 9.1 per cent in June to 6.5 per cent in December, with many of the drivers of inflation in this country similar to Australia.”
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