Home lending continues softening

9 July 2004

Loans for owner occupied housing continue to ease, but only moderately, an encouraging sign for Australia's residential sector.

Figures released today for the month of May show that the number of new loans fell by 2.6 per cent, the eighth consecutive decline, but a decline in keeping with the orderly pull-back in housing finance seen since the peak reached in October last year.

In an encouraging sign, the proportion of first home buyers in the market increased for the second consecutive month, following two years of consistent decline. The proportion increased from 13.4 per cent in April to 14.1 per cent in May.

HIA's Senior Economist, Mr Harley Dale, said that today's figures lined up with other leading indicators for the sector in pointing to a pull-back in housing activity in 2004/05. 

"The established house market is continuing to cool, but to a moderate extent. Meanwhile loans for the construction of new dwellings are down by 10 per cent on the peak of last year, suggesting an orderly and modest correction in new home construction ahead that will be a manageable proposition for the residential building industry," Mr Dale said.

"Throw into the mix the current stable interest rate environment, stimulus to households from the Federal Budget, and very little evidence of overbuilding, and the outlook for the housing sector remains relatively bright," he added.

On the other side of the ledger, loans for investment properties eased by 2 per cent Australia-wide in May, the sixth drop in seven months.

 "Investor loans are 23.4 per cent off their October 2003 peak. While the total value of such loans remains historically very high, the euphoria of last year is no longer with us," Mr Dale said.

The total number of loans for owner occupiers fell by 7.6 per cent in Western Australia, followed by Tasmania, down 5.9 per cent, South Australia, down 5.2 per cent, the Northern Territory, down 4.7 per cent, Victoria, down 4.5 per cent, Queensland, down 4.4 per cent, and the ACT, down 1 per cent. New South Wales bucked the trend, with loans rising by 2 per cent.