No end in sight for market pressure

Housing Industry Association (HIA) economists expect a downturn in building approvals to intensify as authorities continue clearing project backlogs.

The further decline is on top of “sobering” data for housing finance commitments, with buyers keeping a tighter grip on their savings as interest rates have soared during the year.

The Australian Bureau of Statistics released its latest figures for building approvals and lending in the past week, both of which show a decrease in housing activity

Dwelling approvals were down 6 per cent in October and 9 per cent lower across the past three months than at the same point last year.

Victoria was one of two states to see an increase in activity, with approvals up 6 per cent compared with October 2021.

But HIA economist Thomas Devitt expected more pain in the nation-wide trend into the new year as the impact of rising interest rates showed itself in figures.

“Despite the decline in approvals in recent months, they are yet to reflect the adverse impact of rate rises that commenced in May 2022,” he said.

“Building approvals have been sustained in recent months by the record number of home sales prior to the first increase in the cash rate that still haven’t been approved, much less commenced construction.

“Sales in and financing of new homes have fallen significantly in recent months, but this is yet to flow through to the number of homes gaining council approval.

“The full impact of the rate rise will not be observed in approvals data until 2023 when the pool of earlier sales is exhausted.”

The tightening economic climate has had a more immediate impact on lending indicators, which dropped to a three-year low in the October statistics.

The total value of housing loans issued fell 2.7 per cent to be 14.6 per cent lower than the same stage in 2021.

HIA chief economist Tim Reardon said all market segments were acting cautiously.

“The declines were seen in all market segments, with lending to first home buyers, owner occupiers and investors continuing to fall in October.

“Lending to owner-occupiers fell to its lowest level in over two years.

“This slowing in housing finance data is consistent with other leading indicators.

“The RBA has already undertaken its steepest hiking cycle in a generation… further hikes would deepen and prolong the trough in building activity that is emerging.”

He said the Reserve Bank risked hampering long-term economic growth if interest rate rises continued.

“There is a risk that the RBA will go too far and need to cut interest rates again to support employment across the economy.

“The risks to household and business finances from such an aggressive hiking cycle are clear. A deep and prolonged trough in home building activity will jeopardise the housing industry’s ‘soft landing’.”