• 14/06/2024

Home loans growth picks up in January

Michael Bleby| Australian Financial Review| 11 March 2020


New home loans rose at their fastest pace in more than three years in January as owner-occupiers and investors benefited from easing lending conditions that pushed average loan values higher.

New mortgage commitments rose 4.6 per cent from December to $20.7 billion, faster than January’s revised 4.5 per cent increase and the fastest month-on-month increase since September 2016, when total new lending rose 5 per cent, official figures on Wednesday showed.

“The flow of mortgage activity has picked up quite meaningfully alongside the other housing indicators since mid-2019,” JPMorgan economist Ben Jarman said.

“Owner-occupier loan growth is still outpacing investor growth, reflecting somewhat tighter lending conditions on the latter.”

January’s increase in lending, which also saw investor loans rise 3.6 per cent month on month by value and first home buyer loans gain 4.8 per cent, is likely to accelerate the rate of dwelling price growth, Mr Jarman said.

“Dwelling prices are up only 5 per cent year-on-year, but this masks an explosive last six months, given the weakness early in 2019,” he said.

“The dwelling price growth and lending numbers should realign somewhat in coming months.”

This, however, brings its own constraints. While regulator APRA’s easier loan serviceability requirements and the central bank’s cuts in the benchmark cash rate – including last week’s reduction to a record low 0.5 per cent – are stimulating the east coast-dominated housing market, these will also reach a limit.

“The average loan to buy an established dwelling is up 21.7 per cent in the year to January – the fastest pace in the 16 years of available data,” CommSec chief economist Craig James said.

“Since the election the average new home loan has lifted by around $75,000 or 17.5 per cent. Rate cuts and increased buyers’ enthusiasm for property have driven the gains.

“But with wages growing at a 2.2-2.3 per cent annual pace, affordability constraints may soon temper the optimism.”

The Housing Industry Association, which represents large-volume builders, also welcomed the growth in new loan commitments, which included a 6.4 per cent monthly increase in loans for new dwelling construction.

But it sounded a note of caution about the possible effects of the global coronavirus epidemic on the industry.

“These results predate the effects of restrictions on trade and travel,” HIA chief economist Tim Reardon said. “These effects represent significant uncertainties for the home building industry and will weigh on activity over the medium term.”

CBA economist Kristina Clifton said owner-occupier home loan growth was strongest in NSW and Victoria, even as she warned of a possible hit to confidence to come.

“Fears around the spread of the coronavirus and its impact on the economy and jobs has the potential to negatively affect the housing market,” Ms Clifton said.

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