16/05/2011 - 11:18

WA home loans buck national trend

16/05/2011 - 11:18

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The number of home loans approved in March rose by 2.1 per cent on February in Western Australia, in contrast to a 10-year low in housing finance approvals nationally.

WA home loans buck national trend

The number of home loans approved in March rose by 2.1 per cent on February in Western Australia, in contrast to a 10-year low in housing finance approvals nationally.

Across Australia, the number of home loans approved for owner-occupiers fell 1.5 per cent in March, to a seasonally adjusted 44,968, its lowest level since February 2001, the Australian Bureau of Statistics said today.

Economists' forecasts had centred on a 2.0 per cent rise in housing finance commitments for the month.

In WA, seasonally adjusted estimates for March were up 115, or 2.1 per cent, on February's statistics.

Nationally, the value of loans to investors ticked up a little, by 2.1 per cent, but aside from the February low, it was the weakest demand from investors since March 2009, when the global financial crisis was sapping investor confidence.

The ABS said total lending by value was down marginally, by 0.1 per cent in March, to a 28-month low, but after adjusting for house price inflation was the lowest for around a decade.

Housing Industry Association chief economist Harley Dale said governments had to take action to support the industry.

"The clearest signal in today's figures, however, is the need for federal and state governments to step up to the plate and deliver on stimulus and reforms to reduce the cost of new housing," he said.

Master Builders Australia chief economist Peter Jones said recent interest rate rises and cautious consumers had dented demand for housing.

"The negative trend evidenced in the housing finance numbers is not primarily due to weather events and has a lot to do with household caution in the wake of recent rate rises by the Reserve Bank," he said.

"Loans for construction of dwellings and purchase of new dwellings, combined, were flat in March as the residual impact of higher interest rates works against a recovery in residential building."

The Reserve Bank of Australia has lifted the overnight cash rate seven times since October 2009 as the economy recovered from the global financial crisis.

The central bank has kept the cash rate at 4.75 per cent since last November but many private sector economists expect the RBA to make at least one increase this year as the economy gathers pace from the mining boom.

Dr Dale said governments had to co-ordinate a plan to boost the supply of housing around Australia.

"The loss of momentum in the housing supply reform process has combined with heightened interest rate pressure to deal a telling blow to new residential construction at the very time when a sustained boost to supply was the required outcome," he said.

JP Morgan economist Ben Jarman said the number was soft and the housing sector was weak throughout the March quarter.

"There were a couple of things going on that we can obviously point to in Queensland, so the numbers are fairly soft," he said.

"In January, we had the Queensland floods and pushed down approvals nearly 15 per cent and the numbers have failed to come back from that.

"It does seem the Queensland floods are exhibiting a fairly long-lasting drag on that market."

Mr Jarman said many households also refinanced their home loans at the end of 2010 after the Reserve Bank of Australia raised the cash rate by a quarter of one per cent to 4.75 per cent.

"That rate hike in November was supersized by the banks," he said.

"So you've got a couple of elements that are contributing to the weakness, but even if those factors start to fade, there will still be some pretty intense headwinds for the sector.

"You've got borrowing rates now above average and the prospect of more rates hikes to come. So we expect the housing data to be pretty subdued for some time to come."

Mr Jarman said he expected the RBA to next hike in August.

"This will give RBA officials time to look through the GDP (Gross Domestic Product) report, which we'll get in a couple of weeks, which we expect will be quite soft.

"The RBA will wait a couple of months to look through the GDP data and get one more inflation print just to make sure the last elevated print wasn't an anomaly."

ICAP senior economist Adam Carr expects the RBA will be happy with the weak numbers.

"I think they would want lending to be weak, to be honest, and that's the right way to think," Mr Carr said.

"The last thing we would want with the mining boom is another credit boom, another house price boom and the subsequent bust that that's going to bring."

The RBA's stance on monetary policy would probably not be changed after Monday's data release, he said.

"Lending is weak and they've known it's weak, notwithstanding the fact that there's some seasonal adjustment problems with the data, Mr Carr said.

"You'd be hard-pressed to argue that rates, where they are, are weighing heavily on the (housing) market and I think think it's more just a consumer choice.

"They don't want to buy houses - they're expensive and house price growth is non-existent. So why would you buy?"

 

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