The Australian Bureau of Statistics’ Lending to Households and Businesses data for September has indicated that lending has dropped significantly for purchasing and constructing homes, with the Housing Industry Association (HIA) attributing the drop to rising interest rates.

Lending for residential is now at its lowest since April 2019 and is remarkably lower compared to this time last year.

“The total value of housing loans also fell by a further 8.2 per cent in September, to be 18.5 percent lower than at the same time in the previous year,” says HIA Senior Economist, Nick Ward.

“The RBA’s tightening is weighing heavily on demand for housing and the full impact will not emerge until the second half of 2023.

“This slowing in housing finance data is consistent with other leading indications, such as HIA’s New Home Sales Survey, which have fallen more than 15 percent in the September quarter.

“If these trends are sustained, which is expected, then the 2.75 percent increase in the cash rate so far will have brought this boom to an end.”

Ward says the existing pipeline of projects is ensuring the construction industry stays afloat, but is weary of the well running dry in coming months.

“There is still a significant volume of work under construction that is sustaining employment across the economy. This is helping to keep the unemployment rate at exceptionally low levels. When this pool of work is completed, the full impact of this rate rising cycle on employment will emerge,” he says.

“There is a risk that this volume of work on the ground is obscuring the adverse impact of rising interest rates.

“These treacherous lags that characterise this housing cycle could result in the RBA weighing too heavily on households and businesses and jeopardising the housing industry’s future soft landing. Patience is required to see the full effect of rate increases to date,” Ward concludes.

The ABS’ report can be found here.

Jarrod Reedie

Lending-down-as-interest-rates-come-up-1732008537.png

Let’s connect!