House buyers scrap spending plans as economy slows, banks tighten loans
(SYDNEY) Australian home-loan approvals fell in September for an eighth month as tighter lending standards and slowing economic growth prompted house buyers to scrap spending plans.
Reversing the slide: An index measuring the weighted average price for homes in the nation's eight capital cities fell 1.8% in Q3 from the previous three months. Still, demand for home loans may rebound in coming months as lenders pass on the interest-rate cuts on to consumersThe number of loans granted to build or buy homes and apartments declined 2.7 per cent to 47,435 from August, when they slid a revised 2.1 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 18 economists surveyed by Bloomberg News was for a 2.8 per cent drop.
A weakening housing market is among reasons the central bank cut its 2008 and 2009 growth forecasts yesterday and signalled it's prepared to add to the most aggressive interest-rate cuts in 17 years.
House prices fell in the third quarter by the most since 1978 and the building industry shrank in October for an eighth month, reports showed last week.
'We don't think falling interest rates will start to help these housing statistics until after Christmas,' said Brian Redican, a senior economist at Macquarie Group Ltd in Sydney. 'Consumer confidence has fallen so much that people aren't thinking about expanding into the housing market.'
The Australian dollar fell to 68.66 US cents at 12.54 pm in Sydney from 68.95 cents just before the report was released. The two-year government bond yield rose 2 basis points to 3.87 per cent. A basis point is 0.01 percentage point.
The Reserve Bank of Australia yesterday lowered its 2008 expansion forecast to 1.5 per cent from 2 per cent and said it had been forced to make 'unusually large' reductions in the overnight cash rate target in October and November because renewed global turmoil raised the risk growth will stall.
The government last week said the economy will expand 2 per cent in the 12 months through June 2009, the slowest pace in eight years, as fallout from the global financial crisis prompts companies such as Qantas Airways to fire workers and drive up unemployment.
Consumer confidence plunged last month by the most in more than two years, triggering the biggest drop in retail sales since April 2005.
To help reverse the slide in domestic demand, governor Glenn Stevens cut the overnight cash rate target by three quarters of a percentage point last week, adding to a one percentage point reduction in October and a quarter-point easing in September.
'The board will be seeking to strike the appropriate balance between avoiding an unduly sharp weakening in demand and the need for inflation to fall back' within its target range of 2 per cent to 3 per cent 'over a reasonable period,' yesterday's quarterly monetary policy statement said.
Mr Stevens will cut the rate by another half point to 4.75 per cent next month, according to 12 of 19 economists surveyed by Bloomberg News on Nov 7. Five expect a quarter-point reduction, one tipped a three-quarter point move and one forecasts a one percentage point adjustment.
Credit provided by banks and financial institutions to home buyers rose 9.2 per cent in the 12 months through September, the smallest increase since October 1983, Reserve Bank figures published on Oct 31 showed.
An index measuring the weighted average price for established homes in the nation's eight capital cities dropped 1.8 per cent in the third quarter from the previous three months, the Bureau of Statistics said on Nov 3.
Still, demand for home-loans may rebound in coming months as the central bank's interest-rate cuts are passed on to consumers by lenders.
The Reserve Bank's reductions since Sept 2 have cut repayments on an average home loan of A$300,000 (S$309,300) by about A$400 a month.
The government is also trying to spur house building by tripling a grant to first-time buyers of new homes to A$21,000.
The total value of lending fell 1.6 per cent to A$17.2 billion in September, yesterday's report showed.
Lending to owner-occupiers declined 1.9 per cent, while the value of lending to investors who plan to rent or resell homes, slipped 1.1 per cent. -- Bloomberg
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