Report: New Home Loans Plunge in 2018

Economists report that the number of new homes approved in 2018 declined by nearly 20%, indicating more price drops and cheaper homes.

The major reasons for the drop were stricter lending requirements, weakening investor demand and the then-impending banking royal commission final report.

Australian Bureau of Statistics figures showed that the number of mortgages taken out across Australia declined by 19.8% in the year ended December 2018.

According to chief economist Bruce Hockman, the December slowdown in lending for investor homes continues the steady drop over the last couple of years, with the number of new investor loan commitments dropping by about 40% from the peak at the beginning of 2017.

The slowdown in owner-occupier loans is more recent, with the declines mostly occurring in the last six months of 2018.

A Domain economist forecasts that property values in 2019 will be determined by home lending so too did Kevin Brogan at a Corelogic event I attended recently in Newcastle.

There is a strong correlation between changes in home lending and changes in home values, so there is a strong possibility of further price declines in 2019. This could signal of what happens in the housing market.

Home lending December, which declined by 4.4%, nearly double the past month, was worsened by the uncertainty in the lead-up to the final report by the banking royal commission.

Chief economist for AMP Capital, Shane Oliver believes the general decline in home lending in 2018 was due to both supply and demand. The banks have become stricter in approving loans, but demand is for loans is also weak. A significant portion of that weakness is focused on investors.

A lion’s share of the home lending downturn went to a drop in investment home loans, which dropped 27.8% in 2018.

The upside to investors staying away from the market was that one in four buyers getting new owner-occupier loans were first-home buyers. This means a bigger share of new lending is made up of first-home buyers. They make up about 27% of all owner-occupier commitments, not including refinancing, up from 20% at the beginning of 2017.

The lending decline was inevitable. The growth was coming to a halt. The environment will eventually become easier for first-time home buyers, which makes for an easier entry into the market.

There had been a boom in both property prices and debt levels. We are now returning to normal, which is welcome news and will eventually mean stable house values and debt levels.

Tim Reardon, peak construction and development lobby group Housing Industry Association principal economist, the slowdown in investor activity would change when house values stabilise.

The slowdown has long been anticipated, however, there are present risks concerning the length and depth of the slowdown.

The market is forecast to remain strong while unemployment rate and population growth will continue at present levels in the long term.