The number of loans which are being made to buy or build new homes and apartments across Australia has reached its lowest level in more than ten years, new data shows.

Released last week, December monthly lending data from the Australian Bureau of Statistics shows that the number of loans which were approved to owner occupiers for the purpose of financing either the construction of a new dwelling or the purchase of a newly constructed dwelling dropped by 4.54 percent in seasonally adjusted terms from 5,205 to 4,797.

At this level, housing construction lending activity is at its lowest point since November 2012.

Loan approvals for new home construction have now contracted for seven consecutive months since the Reserve Bank of Australia (RBA) began raising interest rates in May last year.

With loan approvals being a leading indicator of home building activity, the figures paint a concerning picture in terms of the outlook for new residential construction.

The latest data comes as the RBA is expected increase the official cash rate again when its board meets on Tuesday.

This comes despite both Treasury and the RBA now expecting that inflation will ease over coming months after reaching a 30-year high of 7.8 percent in the December quarter.

Since May, the RBA has increased official interest rates on eight consecutive occasions (from 0.1 percent to 3.1 percent) as it sought to contain surging inflation following the outbreak of the Ukraine war.

Housing Industry Association Chief Economist Tim Reardon warned that worse may be yet to come for the home building sector as the full impact of the rate increases flows through over 2023.

He says the RBA should pause future rate increases.

Arguing that it is easier to slow the economy than it is to kick-start an economy that is too weak, Reardon says the current economic cycle is different from that in the 1980s, which saw official interest rates surge to a peak at 17.0 percent in  January 1990 as the RBA sought to dampen an overheating economy.

In the current cycle, Reardon says that supply chain disruptions of the pandemic are easing and inflation in other economies is slowing.

Rather than crashing the economy though excessive interest rate rises, he says government should consider other means to control inflation.

“Lending for new homes is now down by 62.4 per cent since its peak in January 2021,” Reardon said.

“It is concerning that this downturn to date doesn’t reflect the full impact of the RBA’s rate hiking cycle of 2022.

“There are significant lags between a change in the cash rate and its impact on the economy.

“The economy needs time to digest the full impact of interest rate hikes before the RBA considers further action.

“We are already seeing signs of a very significant slowdown in a leading part of the economy (home building).

“Industry needs stability, and the RBA won’t achieve this by sending the housing sector through boom-and-bust cycles.”

Whilst lending activity for new home construction is falling back, that for existing home renovation remains at healthy levels.

In December, the value of loans that were made to owner occupiers to finance alternations, additions and repairs to existing dwellings came in at $547.3 million.

At this level, home renovation lending activity is running at a pace which is more than twice that seen before the pandemic.

This indicates that renovation work may help to keep builders and tradespeople reasonably busy even as the pace of new home building begins to ease back throughout the year.


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