Housing lending down as prices plunge

·3-min read

The value of lending for housing dropped sharply in July as property prices fell in most major Australian cities.

The Australian Bureau of Statistics said new loan commitments for housing dropped 8.5 per cent, or $28.4 billion, on the previous month following a monthly fall of 4.4 per cent in June.

The value of new owner-occupier loan commitments fell seven per cent to $19 billion, while new investor loan commitments fell 11.2 per cent to $9.3 billion.

"Although lending has fallen from historically high levels recently, the value of loan commitments remained significantly higher than pre-pandemic levels," ABS head of finance and wealth Katherine Keenan said on Thursday.

"Owner-occupier loans in July were 40 per cent higher than February 2020, while investor loans were 78 per cent higher."

Housing Industry Association economist Tom Devitt said the slowdown in lending to buy or build new homes highlighted the impact of rate hikes.

"The rise in the cost of borrowing is compounding the impact of the rapid increase in the cost of building a new home that occurred due to the constraints on global supply chains," Mr Devitt said.

He said there were declines in lending across all markets, led by investors.

CommSec economist Ryan Felsman also said new home lending had further to fall.

"Housing finance approvals are lagging the downward moves in housing turnover and home prices," Mr Felsman said.

In August, home values saw the sharpest monthly drop in almost four decades, with the downturn now spreading beyond the major cities.

The monthly decline marks the fourth fall in a row on the CoreLogic index as the fallout from interest rate hikes continues.

The national index fell 1.6 per cent over the month.

The decline has now spread to every capital city except Darwin, with Sydney still leading the downward course - falling 2.3 per cent over the month.

Brisbane's downturn is also gathering pace, with values falling by 1.8 per cent, following a 0.8 per cent drop in July.

While regional markets have so far fared better than urban centres, regional home values have started to soften.

In August, regional home values fell 1.5 per cent.

CoreLogic's research director Tim Lawless said the biggest falls were occurring in commutable areas that boomed during the pandemic.

For example, the Sunshine Coast in Queensland saw a 4.5 per cent decline in dwelling values for the month.

Dwelling values remained well above pre-COVID levels despite the softening market, with all regions and capitals except Melbourne still seeing home values at 15 per cent or above the levels recorded in March 2020.

Mr Lawless expects the downturn to continue throughout 2022 and potentially extend into next year, depending on interest rate decisions.

AMP Capital economist Shane Oliver expects the housing market to fall 15-20 per cent by 2023 from peak to trough as further interest rate hikes are likely.

"There are three reasons why this home price downturn will likely be deeper and the recovery slower than in past cycles: higher home price to income levels; higher debt levels; and an end to the long-term decline in interest rates," Dr Oliver said.

He anticipates a gradual recovery on the other side.

The ABS also reported private new capital spending fell by 0.3 per cent over the June quarter.

Spending on buildings and structures fell by 2.5 per cent while equipment, plant and machinery rose by 2.1 per cent.