#28: Investor Borrowing Rises, SA Tops State Rankings, Inflation's Impact on Rates, Falling Homebuilding Approvals & Slowing Rent Growth

Investor Borrowing Rises 41.3% in 15 Months: Market Dynamics

There's been an astonishing increase in property investor activity over the past 15 months, with no signs of it slowing anytime soon. Back in March 2023, when investor activity bottomed out, investors signed up for $7.797 billion of home loans, according to the Australian Bureau of Statistics. However, in June, the most recent month for which we have data, $11.016 billion of investor loans were issued. That's an increase of 41.3%.

Why have so many investors been entering the market? Probably due to a combination of four reasons:

• Property prices are rising
• Rents are rising
• Vacancy rates are very low
• Interest rates may have peaked

Owner-occupier borrowing has also increased during the past 15 months, but only by 15.7%.

SA Reigns Supreme – Again: State Rankings

For the third consecutive quarter, South Australia has topped CommSec’s quarterly State of the States ranking.

• South Australia scored highest with three of the eight economic indicators – unemployment, home building starts, and construction work.
• Western Australia (ranked 2nd) scored highest with two indicators – home lending and population growth.
• The ACT (ranked 4th) scored highest with the other three indicators – economic growth, retail spending, and equipment investment.

CommSec ranks the states/territories by comparing their current performances on the eight key indicators with their long-term averages.

“Across the country, the economic performance of Australia’s states and territories is being supported by both strong employment and population growth, at a time of higher-than-desired price inflation,” said CommSec senior economist Ryan Felsman.

“While South Australia retains first place, Western Australia is seeing the strongest annual economic momentum, so it will be interesting to see how this plays out in the coming quarters.”

Inflation Holds the Key to Interest Rates Outlook: RBA Decisions

The Reserve Bank of Australia (RBA) has decided to leave the cash rate at 4.35%. Here are five key takeaways from the RBA’s statement announcing the decision:

1. The RBA is concerned that inflation (currently 3.8%) remains above its target range of 2-3%.
2. Returning inflation to target “within a reasonable timeframe” is the RBA's “highest priority.”
3. The RBA “will do what is necessary to achieve that outcome” – which might mean leaving interest rates higher for longer, or even increasing the cash rate.
4. Inflation is forecast to return to the 2-3% target range in late 2025.
5. However, the economic outlook is “uncertain” and it's possible inflation might go up rather than down from this point.

Homebuilding Approval Numbers Falling: Supply Challenges

There's been much talk about the need to increase Australia's housing supply, but the data suggests the problem may get worse before it gets better.

The number of dwellings approved for construction in June was 3.7% lower than the year before, according to the latest data from the Australian Bureau of Statistics.

But the problem looks more serious when you zoom out. That's because while 1,113,321 homebuilding approvals were issued in the five years to June 2019, only 935,588 were issued in the five years to June 2024.

That's a 16.0% reduction between June 2019 and June 2024, even though the national population increased by about 2 million people during that time.

Rents Increasing at a Decreasing Rate: Market Adjustments

Property investors are continuing to make gains in rental income, but the rate of growth is slowing, according to CoreLogic. The national median rent increased by 0.1% in July, which was the smallest monthly rise since August 2020.

Rental growth is slowing for both the house and unit markets – off a high base – but the slowdown is particularly marked for units. “The easing in rental growth aligns with the peak in net overseas migration in the first quarter of 2023.

The large majority of overseas migrants, mostly students, arrive in Australia on temporary visas. Housing demand from overseas migration tends to favour inner-city unit rental markets,” CoreLogic research director Tim Lawless said.

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