Tuesday, August 11, 2009

Aussie home loan demand rises

(SYDNEY) Demand for Australian home loans climbed for the ninth straight month in June, adding to evidence that a strengthening housing market is driving a recovery and backing views that the central bank will start raising rates in coming months.

Government data yesterday showed that demand for home loans rose 1.1 per cent in June, slightly lower than market forecasts of a 1.8 per cent rise, but up over 25 per cent from a year earlier.

First-time home buyers continued to support the housing market, helped by 50-year-low mortgage rates and generous government handouts, although demand from them showed signs of waning.

'This is a pretty good set of numbers and shows that the demand side of the housing market is pretty strong,' said Adam Carr, senior economist at ICAP. 'The data keeps expectations of a rate hike before the year end very much alive.'

Financial markets last week swung to price in a rate hike as soon as November after a surprisingly strong jobs report for July, which continued a run of robust data as large doses of monetary and fiscal stimulus kicked in.

Last week, the Reserve Bank of Australia (RBA) shifted away from its easing bias and raised its growth forecasts, making clear that rates could be expected to rise to normal levels over time.

The RBA's cash rate is at a record low of 3 per cent, having been lowered by 425 basis points between September and April.

The bulk of those aggressive rate cuts have been passed on to borrowers and, along with generous handouts to first home buyers, the housing sector has supported activity in the Australian economy.

House prices jumped 4.2 per cent in the second quarter, a fact that has been highlighted by RBA governor Glenn Stevens.

Last month, Mr Stevens said that there was a danger of an asset price bubble developing if low mortgage rates led only to higher property prices and not to increased home building.

Yet the latest data gave an early sign of some cooling in demand.

The proportion of first-home buyers as a percentage of all dwellings finance slipped to 27 per cent in June from 28.5 per cent a month earlier.

'This may suggest that the first-home buyer boom may have peaked,' said Josh Williamson, analyst at Citi. 'Some moderation in the growth of first-home owner demand would be welcomed by the RBA as pre-bubble like conditions were starting to develop.'

Also, there was a rise in demand for fixed rate loans.

They accounted for 8 per cent of the total in June, up from 6.2 per cent in May, as more borrowers locked in mortgage rates on speculation that official rates have already bottomed.

'With most market economists, including ourselves, expecting the next move in the official cash rate to be up, more and more borrowers will be locking in home loan rates going forward,' said Helen Kevans, economist at JP Morgan. -- Reuters

Source: Business Times, 11 Aug 2009

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