Building industry ‘particularly concerned’ with FHB lending fall

On Monday (3 April), the Australian Bureau of Statistics (ABS) released its new housing loan commitments data for February 2023 and revealed that the value of owner-occupier housing loan refinances between lenders rose 3.5 per cent for the month.

The increase in owner-occupied refinances marked a “new record high of $13.6 billion”, as borrowers switch lenders in search of lower interest rates as the Reserve Bank of Australia (RBA) continues to hike the cash rate.

Total housing refinances reached $19.9 billion (up 2.7 per cent), marking a 22.6 per cent increase compared to a year ago, of this investor housing lifted 1 per cent to $6.3 billion.

The data came ahead of the central bank’s monetary policy decision on Tuesday (4 April), where there are growing expectations the RBA could pause another cash rate hike as inflation figures fell for the second consecutive month to 6.8 per cent in February.

The latest 25-bp increase to the cash rate in March 2023 took the cash rate to 3.6 per cent.

While refinances continue to increase on the back of rate rises, the total value of new loan commitments for housing fell 0.9 per cent to $22.6 billion in February 2023 (seasonally adjusted), after a revised fall of 2.4 per cent in January, the ABS data noted.

The value of new loan commitments for owner-occupiers fell 1.2 per cent to $15 billion in February 2023, while the value of new investor loan commitments fell 0.5 per cent to $7.6 billion.

In addition, given the volatility in the construction industry with several major collapses, the value of new loan commitments for the construction of dwellings also dropped 7 per cent for the month to $1.57 billion, while the purchase of newly erected dwellings lifted 0.6 per cent.

Fewer FHBs enter the market

Master Builders Australia chief economist Shane Garrett said it was “particularly concerning” that the volume of first home buyer loans had fallen so sharply over the past 18 months.

The ABS data showed the number of new owner-occupier first home buyer loan commitments fell 3.5 per cent in February 2023, after a revised fall of 4.6 per cent in January.

“First home buyers now account for less than one-third of home acquisition loans. The high cost of creating new homes makes it much more difficult for our industry to deliver at the appropriate price point for first home buyers,” said Mr Garrett.

“Taxes like stamp duty also act as a huge financial impediment for those wishing to own a home for the first time.”

Average loan size for FHB hits ‘new record’

Despite tighter lending due to higher interest rates and a fall in the number of first home owner occupied loans, the average loan size for first home buyers had lifted to a new record of around $497,000 in February, according to ANZ’s senior economist Adelaide Timbrell.

This was around $75,000 more than the highest pre-COVID-19 average, she said.

“Upgrader loans moderated to $710,000, though have hovered around an average of $700,000–$720,000 since mid-2022, down from a peak of $750,000 in March 2022,” Ms Timbrell said.

The ABS data also showed since the record-low interest rates in 2021, which saw a huge uptick in borrowers fixing interest rates, fixed-rate loan commitments continued to fall from their peak in July 2021 at $26.2 billion to $2.1 billion.

Home building approvals increase

Meanwhile, the ABS also released its home building approvals data for February 2023 revealing a 4 per cent increase in the number of new homes approved for the month (up 12,661 homes), with the value of total buildings increasing by 19.7 per cent.

Private sector detached homes drove the increase, with a gain of 11.3 per cent during the month, However, higher-density home building approvals retreated again with a 9.5 per cent decline during February.

While house approvals lifted, unit approvals dropped 8.4 per cent month-on-month to their lowest level since July 2012, which suggested some reduced appetite from developers, likely due to escalating construction backlogs, Ms Timbrell said.

Ms Timbrell expects that housing construction is likely to fall substantially over the next couple of years exacerbating the housing supply issue.

Westpac's senior economist Matthew Hassan added that the housing finance data, in particular loan sizes, reflected the "big rise in construction costs" with the average value of construction-related loans just 4 per cent below the average value of loans for an existing dwelling.

"In areas and segments where new and existing dwellings price off each other, this may be a source of upward pressure for existing dwellings in an otherwise weak market," Mr Hassan said.

[Related: Rate pause expectations strengthen as inflation falls]