Borrowers in Australia are continuing to take on larger mortgages, according to the latest data from the Australian Bureau of Statistics, even as home price growth slows. Despite a slight dip in the number of new loan commitments for housing in late 2024, the total value of loans continued to rise, largely driven by higher loan sizes.
Housing Demand Remains Resilient
In the December quarter of 2024, new housing loan commitments fell by 0.4%, but the total value of these loans rose by 1.4%. This indicates a softening market towards the end of the year, with a slowdown in home price growth. However, the annual growth in new loan commitments remained strong, with an overall rise of 7.2% in the number of loans and 16.0% in the total value from 2023 to 2024.
More than half of the growth in new loan values was attributed to an increase in average loan sizes, reflecting higher home prices. Despite the challenges of affordability, the demand for housing loans has remained robust.
Owner-Occupier Loan Sizes Hit Record
The average loan size for owner-occupiers reached an all-time high of $666,000 in the December quarter, up $25,000 from the previous quarter. The number of owner-occupier loans also grew by 2.2% compared to the previous quarter, reflecting ongoing demand in this sector.
Investment Loan Activity Shows Signs of Slowing
On the investor side, the value of new loan commitments fell for the first time in nearly two years, declining by 2.9% quarter-on-quarter. Despite this dip, the average loan size for investors rose to a record $674,000, reflecting the continued appeal of investment properties amid rising rents and home prices. Year-on-year, the value of new lending to investors grew by 22.0%.
Market Outlook: Interest Rate Cuts Could Fuel Renewed Demand
Despite the slowing pace of home price growth in the latter half of 2024, the housing market is expected to see renewed activity as interest rates begin to decrease. The prospect of rate cuts has already started to lift consumer sentiment, with a 6.5% increase in house price expectations recorded in February 2025, marking the first rise in expectations since October 2024.
As a result, the recent downturn in home prices could be short-lived, with improved affordability and increased buyer confidence expected to reignite demand and potentially lead to price growth once again. However, housing affordability remains at its lowest level in three decades, meaning that any future price gains may be more subdued compared to previous cycles.
In conclusion, while the pace of home price growth has slowed, borrowers are continuing to take on larger loans, with the housing market still showing resilience despite ongoing affordability challenges and higher interest rates. As the market adjusts to a lower interest rate environment, a shift in sentiment may spark renewed demand and price growth in the months ahead.
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