Home lending has climbed back up to the highs of 2017, when prices in Sydney and Melbourne markets were at their peak

It’s been a remarkably steep ascent. (Mike Powell, Allsport)
  • The recovery in Australia’s property market appears to be alive and well after new ABS data indicated home lending in August returned to its 2017 highs – when the Sydney and Melbourne markets were near their price peaks.
  • That’s off the back of three months of strong growth, buoyed by rate cuts, with housing demand up 5% in the month of August, and new lending commitments rising 3.2% seasonally adjusted.
  • While economists expect another rate cut, continued strong growth of home lending and property prices may spook the RBA yet.

Money is piling back into Australian real estate and it shows no sign of abating.

New ABS data out on Thursday showed home lending continues to strengthen, up 1% on the previous month seasonally adjusted, as buyer clamour into a market that has not only stabilised but appears to be bouncing rapidly.

“Housing demand from first home buyers continues to improve, up 5% month on month, seeing loan demand lifting back to 2017 levels. This is largely directed towards established dwellings which helps affirm that property turnover has bottomed out,” BIS Oxford Economics economist Maree Kilroy said in a note issued to Business Insider Australia.

New lending commitments rose 3.2% seasonally adjusted following a 4.3% rise and 1.8% rise in the months preceding. The August figures have far and away surpassed expectations. Market consensus had forecast a 3% decline on home loans and a 1.7% decline on investment lending.

After almost two years of declines in Sydney and nearly 18-months in Melbourne, prices were reinvigorated after the Federal Election earlier this year. In the months since, prices have risen again strongly, even if they’re yet to recoup all of their losses since 2017. That’s been encouraged on by the Reserve Bank of Australia (RBA) going on a rate cutting spree.

“The two rate cuts in June and July, combined with eased mortgage serviceability guidelines are opening up credit. We can not only see this in new loan volumes, but also in the average loan size for owner-occupiers, which rose to its highest level on record — $414,007 seasonally adjusted,” Kilroy said.

“This shows that not only are more people able to borrow for a house, but also that the amount they can borrow has increased.”

That money has helped drive prices higher, which in turn may have helped buoy sentiment in the property market. Economist and former Julia Gillard adviser Stephen Koukoulas notes that this and the most recent price data shows a recovery is firmly underway.

“Both Sydney and Melbourne [are] up over 4% from their respective lows. Both Sydney and Melbourne [are] set to register price rises in 2019,” he tweeted.

That leaves the risk in the property market that prices, and the debt that helps fuel those, will continue to run up and away, according to IFM Investors chief economist Alex Joiner.

That momentum upwards will be something the RBA and governor Philip Lowe will be watching closely as it considers its next move at its November board meeting.

“Governor Lowe [has] noted that that rising house prices and lending would only become an issue for monetary policy if credit growth accelerated rapidly,” CBA senior economist Kristina Clifton said in a note.

“The RBA are not expecting to see a rapid acceleration in credit growth with tighter bank lending standards keeping a lid on supply and already high household debt levels containing demand for new loans.”

“We are not so sure,” Clifton said, noting that while CBA expects the RBA to cut once more regardless of this surge, it was an ongoing issue.

If lending continues to rapidly rise, and prices keep spiralling upwards, the RBA may have no choice but to pump the brakes.

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