Peak of New Home Construction In Sight

New home construction is slowing despite a bumper week in the residential market.

Finance for the construction of new homes fell 10.7 per cent and the purchase of newly constructed homes was down 7.3 per cent in April, according to the Australian Bureau of Statistics.

Lending commitments pre-empted new residential construction in comparison to approvals, which increased to 30 per cent, representing a large number of projects already in the making.

However, the appetite for existing homes was still evident in the data, with lending up 3.2 per cent in April as house prices rose across the country into May.

ANZ economists Adelaide Timbrell and David Plank said lending for owner-occupiers was still up 70 per cent on last year.

“Lending for established dwellings improved as new listings came off their lows, while lending for construction of new dwellings has been moderating bit by bit from its peak in February,” they said.

HIA economist Angela Lillicrap said the cooling in construction loans was consistent across all the states and territories.

“This is the first ABS data to show that we are past the peak in the surge in construction due to HomeBuilder,” Lillicrap said.

“First home buyer activity has also eased back from its elevated levels, declining by 1.9 per cent in April.”

Record loan commitments pushes prices up

Despite the drop in financing to build new dwellings, overall, home loan commitments reached a record high of $31 billion.

CBA head of Australian economics Gareth Aird said the lending mix was shifting but residential prices would continue to rise.

“Housing finance has a strong leading relationship with dwelling prices,” Aird said.

“The strength in lending means that home prices will continue to rise strongly over the near term.

“Lending to first home buyers has declined for three consecutive months which suggests that affordability constraints are biting.”

ABS figures showed owner-occupier loan commitments were up 4.3 per cent to a record $23 billion and financing for investors rose 2.1 per cent to $8.1 billion the highest level since mid-2017.

ABS head of finance and wealth Katherine Keenan said NSW and Victoria accounted for the majority of commitments.

“The rise in owner-occupier lending was driven by increased loan commitments for existing dwellings, which rose 9.2 per cent,” Keenan said.

“Loan commitments to owner occupiers for the construction of new dwellings fell by 11.4 per cent, following a fall of 14.8 per cent in March.

“These were the first monthly declines since the Homebuilder grant was introduced in June 2020. However, the value of construction commitments remained at a high level.”

Perth market an indication of the future?

Loan commitments to owner-occupiers in Western Australia dropped 7.9 per cent after a 5.1 per cent fall in March.

The Perth market reflected the end of the state’s Building Bonus Grant, which finished on 31 December 2020.

Already in Western Australia approvals for new houses have fallen -3.8 per cent while units hold on at 5.5 per cent.

House prices only increased 1.1. per cent in May according to Corelogic, representing the slowest growth in the country.