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Unpleasant surprise for Australian home-loan approvals

High interest rates discouraged many to take loans

Gulf News

Australian home-loan approvals unexpectedly fell in July by the most in five months as the highest interest rates among major developed economies discouraged buyers from entering the market.

The number of loans granted to build or buy houses and apartments declined 1 per cent from June, when they rose a revised 1 per cent, the statistics bureau said in Sydney today. The median estimate in a Bloomberg News survey of 16 economists was for approvals to be unchanged.

The data added to concerns that the economy is weakening after government reports last week showed a surprising fall in retail sales, employers unexpectedly cutting 8,800 workers and the nation recording its seventh straight monthly trade deficit. Most economists surveyed by Bloomberg say Reserve Bank of Australia Governor Glenn Stevens will resume lowering rates in November from the current 3.5 per cent after cuts in May and June.

“Potential buyers are reluctant to return to the property market despite looser monetary settings,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “Until there is a sustained improvement in sentiment, housing finance growth will keep disappointing.”

The Australian dollar was little changed after the data, trading at $1.0382 at 12:19 p.m. in Sydney from $1.0367 before the release.

The report showed the total value of loans fell 1.8 per cent to A$20.1 billion ($20.9 billion) in July.

The value of lending to owner-occupiers declined 1.4 per cent from a month earlier, the report showed. The value of loans to investors who plan to rent or resell homes dropped 2.7 per cent.

First-home buyers accounted for 19.2 per cent of dwellings financed in July, up from 18.5 per cent in June and higher than 16.5 per cent a year earlier, the report showed today.

Australia’s economy slowed last quarter on weaker housing and rising imports, a government report showed September 5. Gross domestic product advanced 0.6 per cent from the previous three months, when it rose a revised 1.4 per cent.

Australian home-building approvals declined in July by the most in almost a decade as weakness outside the resources industry hurt housing, according to government data on August 30. Two days earlier, a private report showed sales of newly built homes dropped to the second-lowest level on record in July.

Australia’s central bank lowered borrowing costs by a total of 50 basis points late last year and a further 75 basis points in May and June to help shield the economy from Europe’s debt crisis and slower growth in China. It held the key rate at 3.5 per cent, the highest among major developed economies, at the past three meetings.

Reflecting expectations of lower benchmark borrowing costs, Australia’s two largest lenders, Commonwealth Bank of Australia and Westpac Banking Corp., reduced their rates on fixed mortgages in recent days.

Australian house prices unexpectedly rose in the three months through June, ending five straight quarters of declines, according to a government report on August 1.

“The housing market is just going sideways,” said Spiros Papadopoulos, a Melbourne-based senior economist at National Australia Bank Ltd. that predicted today’s 1 per cent decline in home loans. “The downward trend has ended, but over the past three or four months we’ve just seen a bit of a flatline in activity so obviously that’s been supported by the rate cuts that we’ve had over the past eight or nine months.”

The jobless rate, at 5.1 per cent in August, is lower than the 8.1 per cent in the US and 11.3 per cent in the euro area.

-With assistance from Daniel Petrie in Sydney. Editors: Brendan Murray, Victoria Batchelor

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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