Rate rises begin to bite industry

HOUSING activity indicators have slumped in latest figures, showing decreasing buyer confidence amid anxiety around construction industry pressure and interest rates.

Australian Bureau of Statistics data from June, released last month, showed Victorians were more hesitant to take out housing loans.

Lending dropped 3.4 per cent in the state compared with last year. The nationwide drop was 4.4 per cent.

Average loan sizes were also marginally smaller in Victoria than the previous month.

First homebuyers were put off more than other market segments across the state, dropping by 11.7 per cent to its lowest point in two years.

But an activity lag is yet to catch up to building approvals, with 6.3 per cent more dwellings approved in Victoria compared with May in seasonally-adjusted figures.

Building and construction impacts had led to expectations of a decline in the second half of 2022 as the industry faced supply chain pressure, and consecutive cash rate spikes caused buyers to watch with caution.

Industry figures found a silver lining in the numbers, indicating the decline was coming from record peaks of early this year.

Housing Industry Association economist Tom Devitt said the data still demonstrated strong housing activity in the first half of 2022.

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

“Every segment of the housing market remains elevated compared to pre-pandemic levels.”

Mr Devitt pointed to sharp increases across the board for lending in the 2021-22 financial year compared with pre-pandemic levels of 2018-19, including form first homebuyers (up 69 per cent), investors (101.2 per cent) and renovations (165 per cent).

But the economist warned recent interest rate rises, which are projected to continue for the rest of 2022, would likely continue a downturn in the coming months.

“The tightening of the cash rate in recent months will, however, bring this record-setting cycle to an end,” Mr Devitt said.

“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.

“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.”