Residential investors built up even more debt, even with a looming interest rate hike

Surprising new data has shown exactly why the Reserve Bank felt it necessary to raise interest rates to 0.35 percent.

The staggering price pressures that forced a hand on Reserve Bank interest rates have been exposed, with new data showing that real estate investors have taken on a record amount of debt — and buyers are splashing a record amount on retailers — just weeks after Tuesday’s hike.

At its May policy meeting, the RBA cited rising inflation as a major reason for a shocking 25 basis point hike in yields and the main factor necessitating further tightening in the coming months.

New evidence released on Wednesday has only bolstered the idea that the Australian economy had been left too hot for too long and showed why Governor Philip Lowe ended emergency measures that had been in place for 18 months.

The Australian Bureau of Statistics reports that a further $33.28 billion was lent on new mortgages in March – the third-highest month since December 2021 and January 2022 – with a monthly record of $11.7 billion only by real estate investors is borrowed.

Borrowers have increased their debt every month but one since interest rates were cut to a record low of 0.1 percent in November 2020.

The surge in lending has coincided with a sharp rise in property prices in recent years and contributed to the increasingly precarious housing situation plaguing much of Australia.

For many people, the rise in real estate prices has pushed the dream of homeownership — not to mention affordable rent — far out of reach.

In March, the borrowing trend continued rapidly, despite the increasing likelihood that a rate hike would be needed in the first half of 2022.

Credit increases were reported for all states and territories with high proportional increases in Queensland (6.7 percent), South Australia (8.5 percent), Western Australia (5.9 percent), the Australian Capital Territory (14.9 percent), percent) and the Northern Territory (32.4 percent).

The ABS also said the average Australian mortgage is now back at $600,000, with just $617,000 in January and $602,000 in December.

Economists at UBS said the numbers suggested home loan growth would remain strong in the near term and around its current pace, but BIS Oxford Economics Maree Kilroy said Tuesday’s rate hike to 0.35 percent should lead to an easing of credit. the mortgage value and the volume.

This, in turn, is likely to follow with an easing of property values.

“We are probably at the peak of average credit, with monthly house price growth now turning negative in the key markets of Sydney and Melbourne,” said Ms Kilroy.

In addition to Wednesday’s credit data, there was further ammunition for the rate hike argument, confirming that March was Australia’s biggest shopping month on record.

Inflated prices and spending momentum after the lockdown have wiped out the effects of the floods with a record $33.63 billion in monthly spending – a 1.6 percent increase from February.

Household goods retail sales were up 3.4 percent, cafes, restaurants and takeaways were up 2 percent), department stores were up 4.1 percent and food retailing 0.5 percent.

“Consumer spending rose in both the discretionary and non-discretionary sectors,” said Ben James, director of quarterly economic statistics.

“After flooding along the East Coast in late February and early March, affected businesses have regained lost revenue from forced closures as consumers replenished their pantry.”

dr. Lowe said Tuesday that a further rise in inflation is expected in the near term, necessitating more rate hikes in the coming months.

The big banks wasted no time passing on the full cost of the rate hike to borrowers, with Commonwealth Bank, NAB, Westpac and ANZ each raising the cost of variable rates by 0.25 percent.

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