Lending frenzy over, now back to the norm

Although the peak of the lending frenzy may have passed, the value of housing loans issued across Australia reached a new record high in 2021/22.

During that time more than $380 billion worth of loans were writing, according to the latest ABS lending to households and businesses data.

Despite a slowing in recent months, lending for the year was still up by 21.2 per cent on the previous year, which was a record high, and up by 81.1 per cent on pre-pandemic levels.

HIA economist Tom Devitt said that every segment of the housing market remains elevated compared to before 2020.

 “There were over $62 billion worth of loans to first home buyers in 2021/22, up by 69.1 per cent on 2018/19 levels,” he said.

“Loans to other owner-occupiers were up by 73.7 per cent and investor loans were double, up 101.2 per cent.

“There was also $6.6 billion worth of lending for renovations in 2021/22, up by 165.0 per cent on three years earlier.”

The result is a record number of houses currently under construction, almost 80 per cent greater than pre-pandemic levels.

There is also a large number of projects approved but not commenced, and sales have remained strong to the end of June.

This will ensure that home building activity and demand for skilled workers will remain strong throughout 2023.

UFinancial finance broker Daniel Walsh said that there is no doubt the increased cash rate is going to cause a slowdown of building activity.

“We are seeing some clients holding off purchasing new builds already and looking to just refinance their existing lending to be in a better position to purchase in the coming years,” Mr Walsh said.

“The sharp interest rate hikes have caused people to take and wait and see approach but hopefully once the increases slowdown we will see purchases start to pick up again in the near future.”

Mr Devitt also said that the tightening of the cash rate will bring this record-setting cycle to an end.

“The adverse impact of the increase in the cash rate will compound the increase in the cost of building a new home and further slow building activity,” he said.

“The industry is reporting a slowing in the number of groups visiting display sites in recent weeks which could result in fewer new home sales in the second half of 2022.

“Given the large volume of work under construction and approved but not commenced, there will be a significant lag between the increase in the cash rate and an adverse impact on new home construction.

“The long lead times in this current cycle will hide the impact of rate rises and risk the RBA over shooting with unnecessary rate increases.”