New home loans fall as rates rise and house prices fall

“The impacts of Reserve Bank cash rate increases are now clearly visible in the lending indicator data. With the cash rate expected to reach at least 2.6% by year end, demand new and existing housing will continue to contract until mid-2023.”

The RBA pushed the official exchange rate to 1.85% after a series of hikes from May. Lenders large and small have followed suit, raising their mortgage costs. The lowest variable mortgage rate is 3.24%, according to RateCity.

The number of new loan commitments to first-time home buyers – who are arguably the most sensitive to rate hikes – fell 35.9% from a year ago, according to the ABS. The decline was most pronounced in Queensland, where loans fell 18.8% in July.

Just as rising mortgage rates have crowded out some buyers, rapidly falling house prices have made other potential buyers more wary. House prices in Sydney have fallen 2.3% through August and are down 7.4% from their peak, CoreLogic figures showed on Thursday. The real estate correction has spread to all capitals except Darwin.

AMP chief economist Shane Oliver expects house prices to fall 15-20% from top to bottom by the second half of next year, followed by a gradual recovery.

“There are three reasons why this decline in house prices is likely to be deeper and the recovery slower than in previous cycles: house prices higher relative to income levels; higher debt levels; and an end to the long-term decline in interest rates,” Dr. Oliver wrote in a note Thursday.

Other analysts, including JP Morgan’s Jack P Stinson, have noted the strong link between investor lending and property prices.

“Given recent declines in house prices, we expect the decline in lending to investors to be larger than that to homeowners in the near term,” he wrote in a briefing.

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