New home loans are being taken out at a record rate, as first home buyers pile into the property market

• New home lending grew at its fastest clip in 11 years in July, while owner-occupier finance hit a new record.
• It comes as first home buyers jump into the market, largely replacing property investors.
• While the Commonwealth Bank upgraded its price forecasts on Wednesday, there are a handful of factors that could see the market weaken further over the next 12 months.
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As the coronavirus pandemic casts a shadow over the property market, those who have been locked out are taking their chance to get a foot on the ladder.

Home loans boomed by the most in 11 years in July, up 8.9% on the previous month, according to the latest ABS figures.

“July owner occupier home loan commitments rebounded with the largest month-on-month rise in the history of the series, as social distancing restrictions eased in most states and territories,” ABS head of finance and wealth Amanda Seneviratne said.

The “very strong” lending growth in the last two months helped reverse monster declines in April and May and have brought parts of the market back towards normalcy, according to AMP Capital senior economist Diana Mousina.

“While owner-occupied housing is back to its pre-COVID levels, investor lending is still well below its levels earlier this year which is also in line with the big fall in rents and higher vacancy rates which dent investor housing returns,” Mousina said.

First home buyers were a driving force behind the bounce, making up around one-in-three of all owner-occupier buyers across Australia.

With migration still on hold and with little economic upside expected for the remainder of the year, investors are unlikely to return to the market anytime soon.

While first home buyers have jumped at the chance to fill the gap they’ve left, Mousina suspects recent growth can’t be sustained.

“Housing finance growth is likely to slow over the next few months from declining housing activity in Victoria, evident in much lower auction clearance rates,” she said.

Melbourne auctions have effectively been put on hold for eight weeks under stage four restrictions, reducing the stock of homes for sale as well as the number of buyers, many presumably unwilling to buy sight unseen.

Longer-term, the economy could continue to weigh on consumer sentiment. On Wednesday in a separate release, the ABS put the number of jobs lost during the pandemic at 932,000.

Meanwhile, there are as many as 650,000 Australians who are expected to continue deferring their loan repayments beyond September.

As the unemployment rate accelerates towards 10%, under the Reserve Bank’s forecasts, there are plenty of economic reasons why the property market is unlikely to boom on the back of a few month’s of eager buying.

Nonetheless, it comes as the Commonwealth Bank, Australia’s largest mortgage holder, announced its property outlook had improved since it anticipated 10% price falls.

“We have upgraded our forecasts and now have a peak to trough fall in dwelling prices of up to 6.0% across the eight capital cities,” CBA senior economist Kristina Clifton said.

“Low interest rates are supporting lending and dwelling prices, providing some offset to the sharp slowdown in population growth and a weak labour market.”

A touch more optimistic than other banks then. In contrast, ANZ called 15% falls as far back as last fortnight.

As government support begins to taper off at the end of the year, however, it’s unclear whether low-interest rates will be able to prop up property prices alone.