Mortgage growth falls from nutty highs, but new homebuyers are still feeling the pain Gregory Jericho

IImagine looking into a crystal ball in November 2019 and foreseeing a global pandemic that two years later we would still be grappling with. Back then, did you think it would be a good time to buy or sell a home?

You may have thought that the economic chaos and the closure of borders to overseas travelers would signal bad news for the housing market and therefore would be a good time to sell.

Finally, in November 2019, the market was pretty weak and property prices barely increased. So maybe you’ve decided to grab the cash before a crash and laugh all the way to the bank.

If so, you’ve clearly forgotten the mantra of Australia’s political class – don’t let the housing market falter.

And so, two years later, in November 2021, the value of new mortgages taken out was 64% higher than two years earlier:

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The plethora of stimulus measures from record-low interest rates to the homebuilder program has led to a spike in mortgage deals:

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While new mortgage growth had slowed somewhat during the lockdown in NSW and Victoria, November saw a sharp rise of 6.9% across the country, led by 9% in NSW and 7.9% in Victoria:

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Everything indicates that property prices will continue to rise sharply, at least for the first half of this year.

While mortgage growth is fortunately not at the insane levels seen in mid-2020, when the value of new mortgages rose by as much as 160% year-on-year, recent growth suggests the annual rise in property prices will continue 15 %-20% for some time:

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But luckily we have lower interest rates, right? Well…for now.

As I noted last week, the market is very much expecting rates to rise this year (I have to admit I’m less optimistic). Still, lowering interest rates hasn’t improved affordability as much as you might expect.

Across the country, the average mortgage size has grown sharply during the pandemic.

In the eastern states, the average new mortgage is up between 22% and 25% since November 2019, while in Tasmania it’s up 31%:

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This massive increase is not enough to overcome the drop in interest rates.

In NSW, the average mortgage was $769,459 in November – just over $156,000 more than two years earlier.

If you had taken out a $613,334 30-year mortgage in November 2019 and paid what was then the average mortgage discount rate of 4.15%, you would have been paying $2,981 a month in repayments.

Conversely, if you took out a $769,459 loan last November at an interest rate of 3.45%, your repayments would be $3,434 per month – $453 more:

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This is about the affordability of housing. It’s all well and good talking up low interest rates, but if the principle has risen enough to offset falling interest rates, then you’re no better off.

It is always worth remembering that falling interest rates will help most who already have a loan.

Those who borrowed in Sydney 10 years ago have absolutely benefited from falling interest rates – their repayments are about $1,000 less – while the rise in property prices has meant newcomers are less wealthy:

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And most importantly, those who have borrowed in the last two years will not benefit from falling rates – all-time lows.

For first-time buyers, the news isn’t so bad.

Stunning is the growth in mortgage amounts from those who are likely to sell their home and buy a new one:

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But even here, the average first-time buyer mortgage in NSW is up 16% ($82,362) since November 2019. This means paying an average of $173 more per month compared to a first-time buyer who took out a loan two years ago.

And remember, that’s $173 extra. The average monthly repayments in NSW for a first homebuyer loan paying the 3.45% discount mortgage rate is $2,557 – or almost $31,000 a year.

So yes, low interest rates make affordability better than it would have been with higher interest rates. But these low interest rates and the fiscal measures in turn raise prices and thus affect the size of mortgages.

For new homebuyers, it seems like they always get hit one way or the other.

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