New home lending increases, but what’s driving the market?

The value of owner-occupier home loan commitments rose 6.0 per cent to $17.3 billion in September. 

“Approximately half of the rise in September’s owner-occupier housing loan commitments was for the construction of new dwellings, which rose 25.3 per cent,” ABS head of finance and wealth Amanda Seneviratne said.

This followed a 19.2 per cent rise in August. 

“Owner-occupier housing loan commitments are at historically high levels, consistent with low interest rates and government incentives. For example, it is likely that the HomeBuilder grant is contributing to increased demand for construction loans,” Ms Seneviratne said.

InvestorKit’s head of research, Arjun Paliwal, believes the loan commitments are due to the changing sentiment levels in the market.

“Sentiment is the biggest shift because lending has been cheap for the last couple of years,” Mr Paliwal explained.

“But it comes down to people’s confidence to take on lending commitments or not.” 

The researcher pointed out the market could be following 2014 patterns, which led to the last boom.

“When it comes to Australia’s new loan commitments and where we are from a total dollar perspective, we are pretty much at 2014 levels.

“As many would know, between 2014 to 2017 we saw some of our biggest capital markets increase substantially in terms of values,” Mr Paliwal explained to investors.

What is driving sentiment?

Mr Paliwal has pointed to a number of factors that are driving Australia’s sentiment leading to new loan commitments.

“There’s been a few reasons. Number one is how Australia has handled COVID. Confidence starts with how consumers feel Australia as a whole is doing,” Mr Paliwal said.

“Number two is the government support. To give an example [in the August figures], there has been an 18.4 per cent increase on a month-by-month percentage change for first home buyers. So, there is clearly a sign first home buyers are feeling confident, incentivised and supported by the government.”

‘Soft spot’ in Australia’s market

While owner-occupiers have increased their spending, investors are yet to return to the market, Canstar’s expert, Steve Mickenbecker, noted.

“The soft spot in the market is investment lending, up only 4.2 per cent year-on-year compared to a 33.8 per cent jump for owner-occupiers. Investors are facing high vacancy rates and potentially expecting softer housing prices when JobKeeper disappears next year. Investors will want to see less uncertainty before flooding back into the market,” Mr Mickenbecker said.