Saturday, January 17, 2009

Home Loans In Australia Rise On Rate Cuts

Source : The Business Times, January 15, 2009

Mortgages rose 1.3% in Nov, slightly better than forecast

(SYDNEY) Demand for Australian home loans showed signs of stabilising in November, as aggressive interest rate cuts and generous government handouts lured first-home buyers back to the property market.

Doing what helps: The Reserve Bank of Australia cut rates by 200 basis points between September and November, and eased by a further 100 basis points in December

Government data yesterday showed that mortgage commitments rose 1.3 per cent in November, slightly better than forecasts of a 1.0 per cent rise and a second straight month of gains.

Yet, loans were still down a hefty 25 per cent for the year, pointing to a long struggle ahead for the housing market and keeping alive expectations of more rate cuts by the Reserve Bank of Australia (RBA).

'Certainly, it is early days but the signs are encouraging,' said Craig James, chief economist at CommSec. 'The number of first-home buyers has posted the best result in a year and is up almost 20 per cent in just the last month.'

The RBA cut rates by 200 basis points between September and November, and eased by a further 100 basis points in December.

The cash rate is now at 4.25 per cent and markets are pricing in further cuts to around 3 per cent as the central bank tries to revive faltering demand amid a gloomy outlook for the economy.

The cuts have fed directly through to mortgage rates, bringing payments on an average A$253,000 (S$254,366) mortgage down by around A$500 a month. In contrast, the US authorities have had far less luck bringing down mortgage rates even though official rates have been cut to near zero.

On its part, the Australian government has also stepped in with an A$10.4 billion economic stimulus package late last year which included a grant of A$14,000 for first-home buyers.

Indeed, first-home buyers accounted for 23.6 per cent of all loans in November, well above 19.5 per cent in October, and the highest level since early 2002.

Still, the overall picture remained lacklustre for the housing sector in Australia. Data last week showed that approvals to build new homes registered their biggest fall in six years in November.

That was reflected on yesterday's data which showed that demand for loans from investors fell 6.1 per cent in November, as mounting risk aversion and the related credit crunch led banks to stay clear of developers and property trusts.

'Investor demand will remain weak until house prices start to improve,' said Spiros Papadopoulos, economist at National Australia Bank.

House prices in the September quarter fell 1.8 per cent, although economists do not expect a collapse in prices like the US, mainly because there is no overhang of empty homes.

Economists estimated that Australia has been building around 40,000 homes a year less than required by population growth and immigration, so this is likely to support prices in the medium term.

But in the short run, a looming recession, growing unemployment and low consumer confidence would keep prices softer.

'From here, the debate will be whether the rapid reversal of the rate rises over recent years is enough to engineer some recovery in housing against a backdrop of deleveraging and rising unemployment,' said Paul Brennan, co-head, economics and market analysis at Citi.

'Overall, the RBA will need to cut interest rates further and we expect the cash rate to fall to 3 per cent by March.' - Reuters

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