Wednesday, 08 October, 2008
Australian home-loan approvals fell in August to a seven-year low, supporting the central bank's decision yesterday to cut the benchmark lending rate by 1 percentage point, the most since a recession in 1992.
The number of loans granted to build or buy homes and apartments declined 2.2 percent to 48,903 from July, when they slid a revised 0.9 percent, the statistics bureau said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg News was for a 1 percent decline.
Sliding demand for home loans was among reasons Reserve Bank of Australia Governor Glenn Stevens cut the overnight cash rate target to 6 percent, the lowest in almost two years. Home- buyers have become less willing to borrow after companies such as Qantas Airways Ltd. started firing workers, while banks are hoarding cash amid turmoil on global credit markets.
Today's report points ``to further declines in building approvals and starts in coming months,'' said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney.
``We expect the Reserve Bank to cut rates further with another move likely before Christmas,'' Ong added.
The Australian dollar fell to 70.72 U.S. cents at 12:16 p.m. in Sydney from 70.98 cents when the report was released. The two-year government bond yield gained 1 basis point, or 0.01 percentage point, to 4.22 percent.
House Prices
The number of monthly home-loan approvals has plunged 27 percent since January, when it reached a record 67,126, today's report shows.
House prices declined for the first time in almost three years in the second quarter, the government said on Aug. 4, after banks raised mortgage rates and rationed lending because they faced higher funding costs amid the global credit squeeze.
Australian lenders have also taken ``a more cautious attitude to lending'' and tripled provisions for bad debts, according to a Reserve Bank report last month.
Concern about credit markets was a key reason Governor Stevens cut the benchmark lending rate by twice as much as economists forecast.
``An unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers,'' Stevens said yesterday.
Market Operations
The Reserve Bank followed up today and expanded its market operations by allowing banks and other financial institutions to deposit residential mortgage-backed securities and asset-backed commercial paper in exchange for collateral. The bank will also issue daily offers for six-month and one-year repurchase agreements.
Yesterday's rate reduction prompted Australia's four biggest banks, led by Commonwealth Bank of Australia and Westpac Banking Corp., to cut their standard variable home loan rates by 80 basis points.
That will reduce the monthly repayments on an average a$250,000 ($177,000) mortgage by almost A$140. About 90 percent of Australian home buyers have variable interest-rate loans that traditionally move with the central bank's benchmark.
Australia's economy grew 0.3 percent in the three months through June, the slowest quarterly expansion since the end of 2004, as consumer spending contracted for the first time since 1993.
Credit provided by banks and financial institutions to home buyers rose 0.4 percent in August, the smallest monthly increase in 22 years, according to Reserve Bank figures.
Consumer Confidence
A separate report showed house-building approvals fell for a second month.
Australian consumer confidence plunged 11 percent in September, according to a Westpac survey taken before yesterday's interest-rate cut and released in Sydney today.
Households spent almost 40 percent of their incomes on mortgage payments in the June quarter, the most in the 22 years that the Real Estate Institute has measured affordability.
The total value of lending fell 3 percent to a$17.5 billion in August, today's report showed.
Loans to owner occupiers declined 2.1 percent, while the value of lending to investors who plan to rent or resell homes dropped 5 percent.
Still, Paul Braddick, head of property analysis at Australia & New Zealand Banking Group Ltd. in Melbourne, said approvals ``appear to be reaching a nadir.
``Recent substantial falls in interest rates, lower fuel prices, tax cuts and the ongoing rapid tightening of housing supply will all provide support to the housing market over the remainder of the year and into 2009,'' Braddick said.
Source: http://www.bloomberg.com/