Housing finance continues slide

HOUSING finance tumbled 14.5 per cent in June to be down 13 per cent in annual terms, according to the latest Australian Bureau Statistics data.

The June quarterly result was also very weak, with the total number of new loans falling 8.5 per cent, and loans for new housing fell 23 per cent.

As the leading short-term indicator of the housing sector, the outcome points to a further contraction in building approvals in the September quarter.

The value of finance commitments advanced in June was about $600 million above the actual value of new lending.

Westpac economist Harley Dale said that was consistent with the continued strength in housing credit outstanding, a reflection of the high level of activity occurring in the housing sector as the GST backlog was completed.

Westpac expects housing finance to show a bounce back of 6 per cent in July.

“Our core view is that a housing down-cycle is under way, and this appears to be supported by today’s housing finance update,” Mr Dale said.

“If indeed we have entered a cyclical downturn in housing, then it is very unlikely that the boost from first home buyers (as a result of the $7,000 Government grant) will offset the overall decline.”

The results are also supported by the Challenge Bank index of House-buying Sentiment which dropped sharply in June, the fifth consecutive fall.

The Index fell 15 per cent in the month to be down almost 27 per cent on the March quarter last year.

Master Builders Australia’s chief economist and deputy national executive director Wilhelm Harnisch said the latest housing finance and building approvals figures showed that housing was heading for one of the hardest falls in recent history.

“The previous forecast of an uncomfortable landing is now likely to turn into a very harsh one,” Mr Harnisch said.

The number of loans for the construction of dwellings slumped by a seasonally adjusted 17 per cent to 4,264 dwellings – the lowest level since 1987.

Lending levels have fallen 42.4 per cent since October.

“The impact of the interest rate rises since November 1999 is now biting hard,” Mr Harnisch said.

“Last week’s pre-emptive rate rise by the Reserve Bank was clearly unnecessary and will prove to be destructive to the housing industry which is highly interest rate sensitive.

“One of the worrying concerns with the recent bad run of housing statistics is that there is no sign of the freefall condition coming to an end.”

He said the latest rate rise could only exacerbate the steep decline.

The affordability of housing has predictably taken a beating. The Challenge Bank Index of Western Australian Housing Affordability (HA Index) for established houses dropped 7.7 per cent in March and is 14.6 per cent below the level in March 1999.

The HA Index for new houses fell almost 6 per cent to be down 17 per cent for the year.

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