Deep rate cuts prompt rise in home loans

Australian housing finance commitments for owner-occupied housing rose 1.3 per cent in November, seasonally adjusted, to 49,192 the Australian Bureau of Statistics said on Wednesday.

The result was slightly better than the median market forecast of a one per cent rise.

Also, the proportion of first-home buyers in the market rose to 23.6 per cent in November, in original terms, from 19.5 per cent the previous month.

Commonwealth Bank of Australia senior economist Michael Workman said the RBA’s rate cuts and increase to the first home owner’s scheme were “undoubtedly” working to restore confidence in the housing sector.

“The series looks like it is levelling out in terms of owner occupied lending,” Mr Workman said.

“It is indicating that the interest rate cuts and also the first home buyers’ scheme have had quite a strong impact on lending.”

The steep declines are over.

The RBA lowered the cash rate, which sits at 4.25 per cent, by 75 basis points in November and by a combined 300 basis points over the final four months of 2008.

As part of its fiscal stimulus package, the federal government doubled the first home owner's grant to $14,000, with $21,000 available for those who purchase a newly constructed dwelling or build their own home.

Mr Workman said expected interest rate cuts in February and March would further support a recovery in the housing industry.

However, he said the recovery would be “measured” given the weakening domestic economy.

The number of commitments for the purchase of a new dwelling rose by 9.8 per cent, seasonally adjusted, while loans for the purchase of established dwellings was 1.1 per cent higher.

However, the number of commitments for the construction of new dwellings fell 0.3 per cent.

Mr Workman said lending for investment purposes remained “extremely weak”.

The Australian dollar reacted positively to the news.

The local currency rose from $US0.6684 before the data was released at 9.30am to $US0.6690 by 10am.

ANZ Banking Group economist Alex Joiner said the data were a “mixed bag” and the recovery in housing finance approvals so far was “fragile at best”.

“The rise in the number of housing finance approvals in November  is proof the cuts in interest rates are having at least some  positive impact on housing demand, albeit only amongst owner occupiers and first home buyers,” Dr Joiner said.

“However, today’s housing finance data has little implication for economic growth if it does not stimulate building approvals which collapsed in November’s read.”

Australian building approvals fell 12.8 per cent to 9581 units in November, seasonally adjusted, from an upwardly revised 10,983 units in October, the ABS said last week.

In the year to November, building approvals fell by 34.7 per cent.

Dr Joiner described as “worrying” the 6.1 per cent fall in the value of investor loans in November.

Investor finance for the construction of new housing was down 7.4 in November, Dr Joiner said.

“The withdrawal of investors from the housing market will weigh on dwelling investment and thus economic growth over 2009,” Dr Joiner said.

“Confidence in the property market is still shaky and economic uncertainty is high.

“The prospect of a climbing unemployment rate throughout 2009 in particular poses a real risk to any significant recovery in the sector.”

AAP

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