07/10/2009 - 14:07

WA home loan demand falls 4.5%

07/10/2009 - 14:07

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Demand for home loans in Western Australia has fallen 4.5 per cent in August as first home buyers retreat from the market, new figures show.

Demand for home loans in Western Australia has fallen 4.5 per cent in August as first home buyers retreat from the market, new figures show.

But economists say demand for housing finance is expected to remain healthy despite a rise in official interest rates this week and the prospect of more to come.

Latest figures from the Australian Bureau of Statistics show that finance commitments for owner-occupied housing fell from a seasonally adjusted 7,241 units in July to 6,914 units in August.

Compared to a year ago, demand for home loans are up a seasonally adjusted 8.6 per cent.

Nationally, demand fell 0.6 per cent in August, which was broadly in line with market expectations of a 0.5 per cent fall and an improvement from the 2.2 per cent decline in July.

The ABS report found the number loans for first home buyers continued to decline.

They represented 24.7 per cent of all new loans for owner-occupied housing in August, having fallen for a third straight month.

The proportion of first home buyers reached 28.5 per cent in May, the highest share since the ABS data series began in 1991.

Commonwealth Bank of Australia economist James McIntyre said first home buyers have "pulled back" from the market, but remained high by historical standards.

"Whilst some air is coming out of the tires on the first home buyer front, there remains a fair way to go before they're running flat," Mr McIntyre said in a research note.

In October last year, the first home owner grant was increased to $14,000 for existing homes and $21,000 for those who bought a new dwelling or built their own home.

It was reduced to $10,500 and $14,000, respectively, from October 1 and was due to revert back to its original $7,000 by January 1 next year.

The number of new mortgages to buy existing homes fell 1.5 per cent, but loans for buying new homes or building a home grew in August.

New lending to property investors was up 7.6 per cent in the month and 18 per cent in the year to August.

ICAP senior economist Adam Carr said the drop off in first home buyer activity would be offset by rising demand from the rest of the market.

Moreover, Mr Carr said interest rates would remain low despite Tuesday's Reserve Bank of Australia (RBA) rate rise and expectations of further hikes in the period ahead.

"I don't think there are serious headwinds facing the housing market in the near-term," Mr Carr said.

"Rates remain low and I doubt the RBA intends to bring them to a restrictive setting any time soon. This is some way off I would imagine."

The RBA lifted the cash rate to 3.25 per cent, from 3.0 per cent at its October board meeting on Tuesday.

ANZ Banking Group economist Alex Joiner said higher interest rates would "remove some of the recent heat in the market" but affordability, at least in the short term, would remain better that it was in 2008.

"We do not expect modest rate hikes over the short term to have a detrimental impact on approvals levels or the broader property market," Dr Joiner said.

"Indeed a consolidation of dwelling prices may be of some comfort to the RBA."

Dr Joiner said recent house price increases were unlikely to have been the trigger for Tuesday's decision to lift rates, but "may have contributed to the increase being sooner rather than later".

RBA governor Glenn Stevens said on Tuesday dwelling prices "have risen appreciably over the past six months".

While the number of new housing loans fell, the value of total housing finance rose by 0.7 per cent to $22.782 billion in August.

 

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