Home lending in Victoria withered to its lowest pace in five years in January, after interest rate rises and the end of the first home buyers assistance, and the Reserve Bank of Australia warns that buyers may be paying even higher prices for housing soon.

Last September, 835 Victorians took out mortgages on new homes, according to the Bureau of Statistics. But in January, following three consecutive rate hikes by the RBA and with the new home buyers assistance winding down, that number plunged to 525.

Mortgages for established houses in Victoria reached a high of 13,050 last June, but in January numbered only 8,457. In all, lending in the state decreased 3.7%.

Even higher declines were reported in other parts of the nation, with Queensland reporting a 10% fall in lending and NSW reporting 7%. Economists believe that planned purchases of housing were brought forward to 2009, to take advantage of the conditions, leaving potential 2010 sales weak by comparison.

Philip Lowe, assistant governor with the RBA, warned that unless “constraints” on construction lending were overcome, housing prices would surge.

“With population growth above average, and growth in the housing stock below average, it is not surprising there has been upward pressure on housing costs,” said Dr. Lowe.

Although massive sums have recently been poured into housing, large percentages of it have gone toward larger homes and renovations, rather than new construction.

“In a sense, as a society we have made a trade-off between quality and quantity,” said Dr. Lowe. “We have implicitly chosen to build bigger and better-appointed dwellings rather than more dwellings.”

For decades, the trend has been for fewer people to live in each dwelling. But now that trend is reversing.

“Obvious examples are the trend towards young adults staying in the parental home longer and a rise in the number of people sharing accommodation,” said Dr. Lowe.

Source: http://www.businessday.com.au/