Australia Home-Loan Approvals Drop to Three-Year Low
Australian home-loan approvals fell in March to the lowest level in almost three years, reinforcing the central bank's view that the highest borrowing costs since 1996 are slowing the economy.
The number of loans granted to people to build or buy homes or apartments dropped 6.1 percent to 59,371, the lowest since August, 2005, after shedding 6.8 percent in February, the Bureau of Statistics said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg was for a 0.8 percent decline.
In another sign economic growth is slowing, a separate report today showed business confidence slid to the lowest level since the September 2001 terrorist attacks in the U.S. Central bank Governor Glenn Stevens, who raised the benchmark interest rate in March for the fourth time in seven months, said last week that a “noticeable restraining impact is being exerted on household and business borrowing.''
“Consumers have taken the message from the Reserve Bank's moves on interest rates,'' said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. “Policy makers will be happy to sit back and watch. There's no further need for them to be hiking rates.''
The Australian dollar fell to 93.78 U.S. cents at 12:31 p.m. in Sydney from 93.99 cents immediately before the report. The two-year government bond yield was unchanged at 6.32 percent.
Households, grappling with higher gasoline and food costs, are also facing extra increases in mortgage rates by commercial banks.
Mortgage Costs
The nation's five largest lenders, led by Commonwealth Bank of Australia, have added an average of almost 90 basis points, or 0.9 percentage point, to home-loan interest rates this year. The central bank has added only 50 basis points in that time.
The Reserve Bank's policy makers left the overnight cash rate target unchanged last week for a second month, after raising the rate to 7.25 percent in March to cool the fastest core annual inflation in 17 years.
About 90 percent of Australian mortgages are taken out on a so-called floating rate, which moves with the central bank's benchmark no fax payday loan. A quarter-point increase adds about A$42 ($40) a month to the average A$250,000 home loan, according to the Housing Industry Association.
“Demand is slowing quite sharply in the first quarter and into the second quarter, which is what the Reserve Bank wants to bring inflation down,'' said Kieren Davies, chief economist at ABN Amro Australia Ltd. in Sydney.
Economic Growth
Demand for housing loans may slide further as home buyers scrap spending plans. Housing affordability deteriorated in the fourth quarter to the worst on record, according to a report by the Real Estate Institute.
The proportion of a family's income needed to repay an average home loan was 37.4 percent in the fourth quarter, the highest since the institute began measuring affordability 22 years ago.
“Evidence is accumulating'' that growth in demand will slow this year, Stevens said on May 6 after leaving interest rates unchanged for a second month.
The central bank cut its forecast last week for economic growth in June 2009 to 2.75 percent from the 3 percent predicted in February. Gross domestic product will expand 2.5 percent in June 2010, compared with a previous outlook of 3 percent, it said.
Recent reports support the central bank's view that the nation's $1 trillion economy is losing momentum. Newly built houses dropped in March for a second month and consumer confidence plunged in April to the lowest since 1993,
National Australia Bank Ltd.'s monthly survey of about 500 companies, released today, showed that the business confidence index fell 4 points in April to minus 8, the fourth straight negative reading.
The total value of lending fell 5.3 percent to A$20.2 billion in March, today's report showed.
Lending to owner-occupiers decreased 4.4 percent to A$14.2 billion, and the value of lending to investors, who plan to rent or resell homes, dropped 7.2 percent to A$5.98 billion.
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