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Australia’s home loan approvals rise in December

Increased lending shows economy is weathering higher interest rates

(SYDNEY) Australia’s home loan approvals unexpectedly rose in December to a six-month high as jobs growth and wage gains underpinned demand for property.

The number of loans granted to people to build or buy houses or apartments climbed 0.1 per cent to 65,645 from November, the Bureau of Statistics said here yesterday. The median forecast of 21 economists surveyed by Bloomberg News was for a one per cent decline.

Increased lending adds to evidence that the A$1 trillion (S$1.3 trillion) economy is weathering higher interest rates and slowing economic growth in the US, Europe and Japan. The central bank said yesterday that it may need to increase borrowing costs further to curb the nation’s fastest inflation in 16 years.

‘The housing market will remain tight, putting upward pressure on prices and rents,’ said Craig James, Sydney-based chief equities economist at Commonwealth Bank of Australia, the nation’s largest mortgage lender. ‘The central bank is talking tough on the economy about inflation and the need to lift interest rates.’

The Australian dollar traded at 90.18 US cents at 4.38 pm here from 89.75 US cents before the lending report and central bank comments were released. The yield on the five-year government bond rose 10 basis points, or 0.10 percentage point, to 6.6 per cent.

Australia’s economy is in its 17th year of expansion, which is underpinning growth in employment and stoking borrowing demand. The jobless rate is at the lowest in more than three decades as retailers including Harvey Norman Holding Ltd and miners such as Rio Tinto Group hire more workers to expand.

‘Demand for finance has so far proved resilient to the Reserve Bank’s interest rate rises,’ said Bill Evans, chief economist at Westpac Banking Corp here. ‘We still expect rate increases to have some damping impact, particularly with the additional hike in February.’

Reserve Bank of Australia governor Glenn Stevens raised the benchmark interest rate by a quarter point to an 11- year high of 7 per cent last week, adding to increases in August and November.

The bank will raise the rate to 7.25 per cent by June, according to 13 of 24 economists surveyed by Bloomberg last week.

About 90 per cent of mortgages are taken out on a so-called floating rate, which is tied to the central bank’s rate.

A 25-basis-point rate increase adds about A$42 a month to the average A$250,000 home loan, according to the Housing Industry Association.

Westpac boosted its interest rate on home loans by 25 basis points following the central bank’s latest adjustment and Commonwealth Bank of Australia raised its main rate by 30 basis points. National Australia Bank Ltd added 29 basis points.

Australia’s five largest lenders also raised rates by between 10 and 20 basis points in January to recoup funding costs that have been driven up by the global credit squeeze.

Housing affordability in Australia dropped to the lowest level on record in the third quarter, according to an index compiled by Commonwealth Bank and the Housing Industry Association. Mortgage repayments accounted for almost 32 per cent of the average first-home buyer’s income.

There are signs that builders are scaling back projects, with a report last week showing that growth in the construction industry slowed in January.

The total value of lending fell 0.6 per cent to A$22.1 billion in December.

Lending to owner- occupiers rose 0.5 per cent to A$15.6 billion in December, yesterday’s report showed. The value of lending to investors who plan to rent or resell homes declined 3 per cent to A$6.58 billion.

Loans to build new houses slipped 2.1 per cent to A$4.68 billion from November, yesterday’s report showed. The number of loans to buy newly built dwellings declined 3.8 per cent.


Source: Bloomberg (Business Times 12 Feb 08)

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