Australia’s Oct home loan approvals drop

Central bank chief raises interest rate for 3rd straight mth

Australian home loan approvals fell in October after central bank governor Glenn Stevens became the first Group of 20 policymaker to increase borrowing costs since the height of the global financial crisis.

The number of loans granted to build or buy houses and apartments dropped 1.4 per cent to 63,865 from September, when they gained a revised 3.3 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 21 economists surveyed by Bloomberg was for a 2 per cent decline.

Approvals may slide further after Mr Stevens boosted the benchmark interest rate last week for an unprecedented third straight month and the government reduced grants to first-time buyers from as much as A$21,000 (S$27,000) in October. Consumer confidence fell this month, a separate report showed yesterday.

‘Homebuyer numbers will continue to retreat from recent highs and this will weigh on overall approval numbers.’ Alex Joiner, an economist at Australia & New Zealand Banking Group Ltd in Melbourne, said ahead of yesterday’s report.

First-home buyers accounted for 26 per cent of dwellings that were financed in October, down from 26.1 per cent in September, the statistics bureau said yesterday.

Mr Stevens and his board increased Australia’s benchmark lending rate last week by a quarter point to 3.75 per cent, as rising business confidence, a surge in house prices and higher exports to China from companies including BHP Billiton Ltd, drive a ‘new upswing’ in the economy forecast by the central bank to last several years.

‘At the beginning of the year, I would not have expected the economy to be looking as good as it does’ now, Mr Stevens said late on Tuesday in Sydney. ‘I thought things would turn out rather worse than they have. But who’s complaining? Not me.’

Investors are betting there is a 42 per cent chance of an interest rate increase at the central bank’s next meeting in February, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange late on Tuesday.

This year’s interest rate increases have added about A$150 to monthly repayments on an average A$300,000 home loan, and may prompt consumers to trim spending that surged in the first half of the year after Prime Minister Kevin Rudd’s government distributed more than A$20 billion in cash handouts to households.

An index of consumer confidence dropped 3.8 per cent this month, led by waning sentiment among households with mortgages, a report by Westpac Banking Corp showed yesterday.

Demand for mortgages surged in the first half of the year amid record purchases from first-time buyers after Treasurer Wayne Swan tripled to A$21,000 a grant to buyers of new homes, and doubled to A$14,000 payments for those purchasing existing dwellings. House prices have gained 10 per cent this year.

In May, Mr Swan extended the increases through to the end of September, when they were partially reduced. The payments will be cut to their original level of A$7,000 at the end of this year.

The total value of loans fell 1.4 per cent to A$23.3 billion, yesterday’s report showed.

Source : Business Times – 10 Dec 2009