Housing Lending in Australia Continues to Decline Amid Tight Monetary Policy

Strategic Insights -

The Reserve Bank of Australia (RBA) raised interest rates in February, and since then, new lending for housing has been trending lower, fueling concerns about the outlook for employment. The Australian Bureau of Statistics (ABS) data shows that new lending for homes fell by three per cent in July to an eight-month low of A$13.58 billion, while the value of refinancing deals by existing homeowners continued to rise, reaching a record A$3.4 billion. The slowdown in lending, combined with the impact of the strong Australian dollar, has sapped the economy's momentum, with growth halving since the peak in housing lending.

Key Takeaways:

  • New lending for housing topped out in February, before the RBA's last interest rate hike, and has been trending lower since, reaching an eight-month low of A$13.58 billion in July.
  • Lending to investors and home-buyers has been falling in fits and starts, from a peak of over 23 per cent of GDP in late 2003 to about 18 per cent at present.
  • The RBA raised interest rates in February and lifted the overnight cash rate to a four-year high of 5.50 per cent, helping to curb housing price rises and inflationary pressures.
  • The value of refinancing deals by existing homeowners has continued to rise, reaching a record A$3.4 billion in July.
  • Monthly employment growth halved between January and July, according to the ABS trend measure, and expectations for employment are as weak as they have been for over 14 years, according to the D&B survey.
  • The government's survey of skilled job vacancies and the ANZ job ads survey also indicate a similar story of an economy growing, but not rapidly enough to generate much growth in job opportunities.

Statistics:

  • New lending for home fell by three per cent to an eight-month low of A$13.58 billion in July, seven per cent below the recent peak of A$14.64 billion in February and 15 per cent under the all-time high of A$15.92 billion in October 2003.
  • The value of refinancing deals by existing homeowners reached a record A$3.4 billion in July.
  • Lending to investors and home-buyers fell from a peak of over 23 per cent of GDP in late 2003 to about 18 per cent at present.
  • Monthly employment growth halved between January and July, according to the ABS trend measure.
  • Expectations for employment are as weak as they have been for over 14 years, according to the D&B survey.

Sources:

  • Asia Pulse, "Housing Lending in Australia Continues to Decline Amid Tight Monetary Policy," September 6.
  • Australian Bureau of Statistics (ABS), data on housing finance.
  • Reserve Bank of Australia (RBA), interest rate decisions.
  • D&B survey of 400 businesses in manufacturing, retailing and wholesaling.
  • Government's survey of skilled job vacancies.
  • ANZ job ads survey.