First homebuyer activity slumps to six-year low: ABS

Confronted with the highest mortgage rates in a decade, first home buyers now represent less than a third of the buyer pool.

First-home buyers have fled the property market after being confronted with the highest mortgage rates in a decade, with new lending to the spooked group hitting the lowest level in almost six years.

Despite property prices stabilising through the first quarter of the year, the Australian Bureau of Statistics (ABS) lending indicators has revealed a 33 per cent slump in the total value of new loan commitment over the year to February, when $22.6bn worth of mortgages were issued.

First-home buyers now represent less than a third of the buyer pool after lending hit its lowest point since mid-2017 in February. It comes just two years after recording an all-time-high through the housing boom.

The value of loans to market entrants slipped a further 3.5 per cent in February, after a 4.6 per cent drop the month prior.

BIS Oxford Economics senior economist Maree Kilroy expects another 0.25 per cent lift to the cash rate tomorrow when the Reserve Bank meets for the third time this year, which will place more pressure on households.

“New sale listings are running well below average, increasing buyer competition for available stock, pushing auction clearance rates upwards, and stabilising prices,” Ms Kilroy said.

“The sharp run-up in borrowing costs is set to push a growing volume of households into mortgage stress, resulting in a higher rate of pressured selling that outweighs the positive leads of recent price stabilisation over the second half of this year. This is expected to prolong the national decline in prices, with falls set to stretch to the end of 2023.”

Interest rates have climbed 3.5 per cent over the past 10 months, taking the average mortgage rate to around 5.5 per cent. Two-thirds of economists and property market experts are expecting a further 25 basis point increase tomorrow, while others are calling for a pause after positive signs that inflationary pressure is receding.

Appetite for refinancing remained strong at homeowners looking for better rates from competing lenders, with 13.6bn of loans changing between banks in February, up 3.5 per cent on the month prior.

Lending for new homes fell year-on-year. Picture: Brendan Radke

Loans to build new homes were down to a 15-year low, with just 4,267 mortgages issued through February. It comes as ABS building approval figures showed a continued dearth in the number of new properties moving into the construction pipeline.

A post-holiday bump in building approvals through February was unable to reverse the 13.6 per cent drop over the past year. Housing industry Associations chief economist Tim Reardon said the figures are further evidence interest rates have worked effectively to reduce consumer spending.

“Owner-occupiers and investors, alike, continue to retreat from the market,” Mr Reardon said.

“Even lending for renovations – the part of the sector expected to hold up relatively well during this downturn – had its weakest month in almost two years.”

Last week, the home building industry was hit another blow with the collapse of Australia’s 12th largest builder, Victorian-based Porter Davis, leaving 1,700 properties in limbo. Several other businesses, including Oracle Homes and Privium Homes have shuttered in the past year.

A new report released on Monday by the federal government’s National Housing and Finance Investment Corporation revealed Australia is falling short of the 200,000 homes needed each year to keep up with demand and address housing affordability challenges.

Ms Kilroy said it looks increasingly like the dwelling approvals downturn could last for some time, potentially into 2024.

Much of the decline in new building can be attributed to fewer apartment blocks being approved, with the largest declines concentrated in Queensland.