Real estate investors have taken on even more debt, even with a looming rate hike

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Startling new data has shown exactly why the Reserve Bank felt it was necessary to raise the interest rate to 0.35%.

The staggering price pressures that have forced the Reserve Bank’s hand on interest rates have been exposed, with new data revealing that property investors have taken on a record amount of debt – and buyers have spent a record amount on retail – weeks away from Tuesday’s rise.

The RBA cited soaring inflation as a key reason for a sharp 25 basis point rate hike at its May policy meeting and the main factor that will necessitate further tightening in the coming months. .

New evidence released on Wednesday only cemented the idea that Australia’s economy had been too hot for too long and demonstrated why Governor Philip Lowe ended the emergency monetary settings that had been in place for 18 months. .

The Australian Bureau of Statistics reports that an additional $33.28 billion was lent for new mortgages in March – the third highest month on record behind December 2021 and January 2022 – with a monthly record of $11.7 billion. dollars borrowed by real estate investors alone.

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

The surge in lending coincided with a sharp rise in property prices over the past two years and added to the increasingly precarious housing situation affecting large parts of Australia.

For many people, soaring real estate prices have put the dream of home ownership – let alone affordable rent – ​​far beyond their reach.

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

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

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

UBS economists said the numbers suggested mortgage growth would remain strong in the near term and at its current pace, but BIS Oxford Economics Maree Kilroy said Tuesday’s rate hike to 0.35% should trigger an easing in the values ​​and volume of mortgage loans.

This, in turn, will likely follow a loosening of property values.

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

Alongside Wednesday’s lending data came further backing for the rate hike argument, confirming that March was the biggest retail month on record for Australia.

Inflated prices and post-lockdown spending momentum swept away the effects of flooding with record monthly spending of $33.63 billion, a 1.6% increase from February.

Retail of housewares increased by 3.4%, cafes, restaurants and take-out services increased by 2%), department stores increased by 4.1% and retail of products 0.5% food.

“Consumer spending rose in both discretionary and non-discretionary sectors,” confirmed quarterly economy-wide statistics director Ben James.

“Following flooding in late February and early March along the east coast, affected businesses have regained lost business from forced closures as consumers restocked pantries.”

Dr Lowe said on Tuesday that a further rise in inflation is expected in the short term, which would necessitate further rate hikes in the coming months.

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

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