Drop of 3.9% adds to signs that interest rate hikes by RBA cooling demand

(SYDNEY) Australian home-loan approvals fell in June, after gaining in May for the first time in eight months, adding to signs that the most aggressive round of interest-rate gains by the Group of 20 member is cooling demand for dwellings.

The number of loans granted to build or buy houses and apartments dropped 3.9 per cent to 46,420 from May, when they rose a revised 3 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 19 economists surveyed by Bloomberg News was for a 2 per cent drop in approvals.

Demand for home loans has slumped since October, when Reserve Bank of Australia governor Glenn Stevens began the first of six increases to the benchmark lending rate to prevent a property price bubble. Annual house price growth slowed in the second quarter, after surging almost 20 per cent in the 12 months through March 31, a report showed last week.

‘It is clear that the Australian housing market is subdued, and there is little to worry the RBA in reports like these,’ Annette Beacher, an economist at TD Securities Ltd in Singapore, said.

The total value of loans fell 1.9 per cent to A$20.7 billion (S$25.6 billion) in June, yesterday’s report showed.

The value of lending to owner-occupiers declined one per cent. The value of loans to investors who plan to rent or resell homes dropped 3.6 per cent.

Signs that Australia’s economic expansion isn’t stoking inflation and concern about potential fallout from Europe’s debt woes were among reasons that the central bank left the benchmark lending rate unchanged last week at 4.5 per cent for a third straight month.

Reports published last week showed home-building approvals and retail sales missed economists’ forecasts in June, and house-price gains decelerated in the second quarter.

‘This moderation in the established housing market is a welcome development and partly reflects the return of mortgage rates to around average levels,’ the central bank said in its quarterly monetary policy statement published last Friday.

Borrowing has tumbled since the start of the fourth quarter after the government began reducing A$21,000 grants to first- time buyers of newly built dwellings. Those grants were lowered in two steps to A$7,000 on Jan 1.

First-home buyers accounted for 16 per cent of dwellings that were financed in June, down from 16.2 per cent in May and 27.1 per cent a year earlier, the statistics bureau said yesterday.

Still, it remains ‘possible that the current cautiousness in spending by households may not persist, particularly if the unemployment rate continues to decline’, the Reserve Bank said last week.

Job advertisements in newspapers and on the Internet rose 1.3 per cent last month, a report by Australia & New Zealand Banking Group Ltd showed yesterday.

The nation’s unemployment rate probably held at 5.1 per cent last month, almost half the level of the US, a report will show this Thursday, analysts surveyed by Bloomberg said. The rate has fallen from 5.8 per cent nine months earlier as employers added more than 300,000 jobs. — Bloomberg

Source: Business Times, 10 Aug 2010