Thursday, March 12, 2009

Australian home loans rise on rate cuts, grants

(SYDNEY) Australian home loan approvals rose in January as government handouts and interest rate cuts spurred record demand among first-time property buyers.

The number of loans granted to build or buy homes and apartments climbed 3.5 per cent to 55,628 from December, when they advanced a revised 6.7 per cent, the statistics bureau said in Sydney yesterday.

A separate Westpac Banking Corp report showed consumer confidence was little changed this month after tumbling in January and February.

A fourth month of increased lending supports the central bank's view that the lowest borrowing costs in 45 years and government cash grants will stoke the economy, which shrank in the fourth quarter for the first time since 2000. Demand from first-time homebuyers may help boost the nation's building industry, which contracted in February for a 12th month.

'Households are responding to lower interest rates,' said Adam Carr, a senior economist at ICAP Australia in Sydney. 'The second half of 2009 will see a modest rebound in construction, which is a clear positive for the economy.'

First-home buyers accounted for 26.5 per cent of dwellings that were financed in January, the highest proportion since the series started in 1991, and up from 18.1 per cent a year earlier, the statistics bureau said.

The benchmark S&P/ASX 200 stock index climbed 1.9 per cent to 3,246.2, led by shares in banks. The local currency traded at 64.74 US cents yesterday in Sydney from 64.90 cents before the figures were released. The two-year government bond yield fell two basis points, or 0.02 percentage point, to 2.66 per cent.

Consumer confidence slipped 0.2 per cent in March, the smallest decline in three months, as households said they are more optimistic about the direction of economy over the next five years, Westpac reported earlier yesterday.

'This could only be interpreted as a strong vote of confidence that current policies are providing a strong foundation in the longer term,' said Bill Evans, chief economist at Westpac in Sydney. 'This is a surprisingly good result' because consumers have been 'bombarded by a stream of disturbing news' as the global slump deepens, he added.

Australia's government in October tripled a grant to first-time buyers of new homes to A$21,000 (S$20,580) and doubled the grant for buyers of existing homes to A$14,000. The increased payments are due to stop on June 30.

Central bank governor Glenn Stevens lowered the benchmark interest rate to 3.25 per cent in February. Mr Stevens said last month that commercial lenders have passed on about 375 basis points of the central bank's 400 basis points of reductions since the start of September.

The rate reductions have saved borrowers with an average A$250,000 home loan about A$600 a month. Around 90 per cent of property buyers in Australia have variable rate mortgages.

Mr Stevens and his board left the benchmark rate unchanged last week for the first time in seven months, saying 'the Australian economy has not experienced the sort of large contraction seen elsewhere'.

Interest rate cuts and government spending will provide 'significant support' to the economy, Mr Stevens said on March 3.

January's rise in approvals was in line with the median estimate of 19 economists surveyed by Bloomberg News for a 4 per cent gain. The total value of lending rose 0.7 per cent to A$18.9 billion in January, the report showed.

Lending to owner occupiers gained 2.3 per cent in January. In contrast, the value of lending to investors who plan to rent or resell homes declined 3.8 per cent.

'The main disappointment is that investors are still shying away from the market,' ICAP's Mr Carr said. 'Until they return, we can rule out a boom' in house prices, which fell 3.3 per cent last year.
Boral Ltd, Australia's biggest seller of building materials, said last month that it expects housing starts will tumble 15 per cent this year to 135,000.

Demand for investment properties has collapsed as the economy shrank 0.5 per cent in the fourth quarter and unemployment rose in January to 4.8 per cent, the highest rate in more than two years.

An index measuring construction fell 4.6 points in February to 29.5, the 12th consecutive month of shrinking building work, the Australian Industry Group said last week. -- Bloomberg

Source: Business Times, 12 Mar 2009

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