Aussie home loans fall for 2nd month

Housing finance seen falling further as central bank hikes interest rates

(SYDNEY) Australian home-loan approvals fell in August for a second straight month as demand from first-time house buyers cooled.

The number of loans granted to build or buy houses and apartments dropped 0.6 per cent to 62,718 from July, when they fell a revised 2.2 per cent, the statistics bureau said in Sydney yesterday.

The median estimate of 19 economists surveyed by Bloomberg was for a 0.5 per cent decline.

Central bank governor Glenn Stevens raised the benchmark interest rate from a 49-year low on Tuesday and signalled further increases in coming months as the economy strengthens.

Approvals may slide further after the government reduced grants to first-time buyers of as much as A$21,000 (S$26,200) at the start of this month.

'We expect the paring back of the first-home owners grant, coupled with the likelihood of further interest rate hikes, to temper appetite for housing finance,' said Su-Lin Ong, senior economist at RBC Capital Markets Ltd in Sydney.

First-home buyers accounted for 24.7 per cent of dwellings that were financed in August, down from 25.3 per cent in July and a record 28.5 per cent in May, the statistics bureau said yesterday.

Treasurer Wayne Swan last year tripled to A$21,000 a grant to first- time buyers of new homes, and doubled to A$14,000 payments for those purchasing existing dwellings.

In May, he extended the increases through to the end of September, when they were partially reduced. The payments will be cut to their original level of A$7,000 at the end of this year.

Mr Stevens raised the benchmark interest rate to 3.25 per cent from 3 per cent and said it is 'now prudent to begin gradually lessening the stimulus provided by monetary policy.'

Investors have a more than 74 per cent expectation Mr Stevens will raise borrowing costs in November by another quarter point, according to interbank futures on the Sydney Futures Exchange.

Concern that a surge in demand for home loans, which had a record run of monthly gains between last October and June, may be stoking a property bubble are among reasons the central bank raised borrowing costs.

The increase followed a record 4.25 percentage points of rate cuts between September 2008 and April.

House prices jumped 7.9 per cent this year through August, property monitoring company RP Data-Rismark said on Sept 30.

Anthony Richards, head of economic analysis at the Reserve Bank of Australia, said last week that house prices may surge too fast, hurting low-income families seeking to buy or rent homes.

'The risk is that we might move toward undesirably strong growth in Australian housing prices,' Mr Richards said. 'We would not want to see very strong growth in housing prices - that would be unhelpful from a social perspective.'

A separate report published yesterday showed the building industry expanded in September for the first time in 18 months.

An index published by the Australian Industry Group and Housing Industry Association rose 8.4 points to 50.8 from August.

The total value of loans rose 0.7 per cent to A$22.8 billion. The value of lending to owner-occupiers declined 1.7 per cent in August. The value of loans to investors who plan to rent or resell homes advanced 7.6 per cent. - Bloomberg

Source: Business Times, 8 Oct 2009