Market cools as home loan lending hits all-time low

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The number of new home loans has fallen for the eighth time in nine months, reaching a nine-year low, according to recent data from the Australian Bureau of Statistics (ABS)

The figures reveal a drop of 3.4% for the month of March to 48,620 new loans, with the number of first homebuyers hitting a three-and-a-half-year low. The overall volume of owner-occupied housing slid to its lowest level since April 2001, with housing finance falling by almost 30% over the last six months.

“This is the ninth consecutive month of falls in housing finance. We’re now down to the levels of the global financial crisis in 2008,” said REIA president David Airey, who indicated that the fall was driven by a rapid decline in the number of first homebuyers. According to the ABS data, first homebuyers accounted for only 16.1% of all lending in March, down from the record high of 28.5% in May 2009. Finance for the construction of new houses has also fallen by 7.3% to $5.8bn.

“Clearly the first-stage new home building recovery was driven by first-time buyer-related activity. In the March 2010 quarter, the first homebuyer loan market was nearly 50% down on the same period last year,” said HIA chief economist Harley Dale.

The news is positive for investors who are slowly moving in to fill the gap. According to CommSec economist Savanth Sebastian, overall investment loans have posted decent gains for the past months and are now up 24% on a year ago. “Credit conditions continue to improve and investors are looking to property as a more attractive investment vehicle – particularly given that job security is much more certain,” he said.

With the amount of funding being provided for housing loans falling from $15.38bn in October 2009 to $12.36bn in March, experts say that it’s no surprise that first homebuyers are backing away from the market. “No doubt the likelihood of further rate hikes in coming months and the substantial growth in house prices are making potential homebuyers rework their sums,” said Sebastian.

Looking forward, it’s expected that prices will drop and affordability will return to the property market. “The weakness in recent data and increasing housing supply should result in the housing sector cooling over the next few months,” said Sebastian.

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