Australia’s housing market faces tough decade as home lending lags
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Australia’s housing market is bracing for a challenging decade, with fresh analysis from Money.com.au revealing that home lending levels are unlikely to return to the heights witnessed during the COVID-19 boom until at least 2036. This stark forecast underscores the long road ahead for both borrowers and the broader real estate sector.
During the peak of the pandemic in the March quarter of 2021, owner-occupier loans soared to an impressive 1,322 per day. This surge was largely driven by a record-low cash rate of 0.10 per cent and a series of government support measures aimed at buoying the economy. However, this boom was short-lived. By the March quarter of 2023, loan volumes had plummeted by more than a third, dropping to just 822 per day, as the Reserve Bank of Australia embarked on a rate-hiking cycle.
Fast forward to 2025, and the situation shows only a modest improvement, with loan numbers averaging 890 per day in the June quarter. At this rate, home lending is not expected to return to its previous highs of around 1,300 loans a day until at least 2036. By then, projections indicate that the average new home loan size will have escalated to $1,145,982, a staggering 69 per cent increase from today’s average of $676,434.
Debbie Hays, a mortgage expert at Money.com.au, provides insight into the challenges facing Australia’s mortgage market. “The stimulus-fuelled peak of 2021 was short-lived, and led to a major trough which we’re still slowly digging our way out of,” she explains. “The fact it will take a decade to return to those levels under normal growth shows just how distorting housing bubbles can be to the wider market.”
Hays highlights the bumpy road to recovery that lies ahead. “There may also be smaller peaks and troughs along the way. These disproportionately affect homeowners and first-time buyers, who are the most exposed to swings in borrowing costs and property prices. When volumes surge, prices rise, and those without a foothold in the market are locked out.”
The anticipated recovery in home lending will occur in a markedly different environment compared to the pandemic era. “Borrowers will be facing much higher average loan sizes relative to their incomes, tougher affordability pressures, uncertainty in the jobs market due to AI, and likely an ongoing shortage of housing supply,” Hays notes. “That’s if another global shock doesn’t intervene before then.”
This sobering outlook comes at a time when the housing market is grappling with multiple pressures. Rising interest rates, affordability issues, and economic uncertainty are contributing to a challenging landscape for both buyers and lenders. The Reserve Bank’s interest rate decisions have played a significant role in shaping the current lending climate, and future rate movements will be closely watched by market participants.
The broader implications of these projections are significant. For potential homebuyers, the prospect of higher average loan sizes and continued affordability pressures could mean that entering the property market becomes increasingly difficult. For existing homeowners, fluctuations in borrowing costs and property prices could create financial strain.
As the real estate sector navigates these challenges, the need for strategic planning and adaptability becomes paramount. The potential for smaller peaks and troughs in the market underscores the importance of resilience and preparedness for both individuals and institutions involved in the housing market.
In the coming years, stakeholders will need to closely monitor economic indicators, policy changes, and global events that could impact the trajectory of home lending. As the market evolves, the ability to respond effectively to these dynamics will be crucial in determining the future landscape of Australia’s housing market.