Skyrocketing house price growth is finally starting to ease, according to the April home loan report from Bluestone’s consultant economist Dr. Andrew Wilson.
Home loan affordability is steady
Home loan affordability is starting to settle from its consistent rise over the last 12 months, as buyers are being priced out of the market.
With recent strong growth causing buyers to borrow more to keep pace with prices, we’ve seen a higher proportion of incomes being used for home loan repayments, leading to a sharp decrease in affordability.
The good news is this is starting to even out – at least in some states. While most states reported a flattening of the affordability index in February this year, ACT, WA and SA registered a rise, which means affordability is still falling in those states and house price increases are outstripping wages growth.
The peak is over for owner-occupiers and investors, but refinancing is up
The high house prices we saw over 2021 have slowed down buyer activity due to a lack of affordability. The last few months did see a surge in market activity, but that was due to pent up lockdown demand. This demand has been satisfied and now things are easing off.
Investor lending is down for the first time in 15 months in most states, with the exception of SA and WA. In spite of a surge of over 80% over the last year, investor lending still tracks below the long-term average, with owner-occupiers taking the majority of the market share of new home loans. First home buyers were also down over February, across all states.
We saw a big increase in refinancing in February, with a rise of 5.2% – the steepest since June 2021. Refinancing was also higher this year than February last year, but not quite as high as the record refinancing rate, which was in July 2021. This would suggest that people are refinancing ahead of predicted interest rate rises – and maybe also to take advantage of increased property values.
The amount we’re borrowing is also declining
It’s not just the number of people taking out home loans that are decreasing – average loan values have also declined sharply in February compared to January, although they’re still higher than they were in February 2021. This would suggest that we’re borrowing less – likely to be due to lower affordability and concerns about rising interest rates. With interest rates remaining low, COVID concerns easing and the national economy reviving, we’re still going to see solid home lending through 2022 – we just won’t have the huge spikes in price growth we’ve been experiencing this last year.
Want to know more? Read the full report here.