Home loans continue to slide

13th Nov 2008 12:50

NEW home loan approvals in Australia have fallen to their lowest level in more than seven years.

However, there is no certainty that further interest rate cuts or the boost to the first home buyers grant will lift the sector, economists say.

Approvals for owner occupier home loans dropped 2.7 per cent in September to 47,435, the Australian Bureau of Statistics (ABS) said today.

It was the eighth monthly fall in a row and the lowest commitments for home loans since February 2001.

Since peaking at 67,213 housing finance commitments in January this year, approvals for new home loan have dropped 29.4 per cent in the following eight months.

Westpac senior economist Matthew Hassan said approvals for new home loans continued to decline in September as owner occupiers put off moving into the housing market.

"The RBA's aggressive tightening of policy from last August to March had a significant impact, as did the credit crunch," Mr de Garis said.

"The impact of higher interest rates on lending was most apparent in the established market."

Mr Hassan said there were some positives from September's data.

"There were welcome increases in approvals for the construction of dwellings, up two per cent, and for the purchase of new dwellings, up 3.6 per cent, both for owner occupiers," he said.

In September, the Reserve Bank of Australia (RBA) cut the overnight cash rate by 25 basis points and slashed it another 175 basis points since, to 5.25 per cent.

The proportion of first home buyers seeking loans rose to 19.7 per cent from 18.6 per cent the month before, the highest percentage gain since March 2002.

St George senior economist Jo Heffernan said lower interest rates and the federal government's fiscal stimulus package should boost the number of first home buyers.

"First home buyers may continue to come off the sidelines in coming months, with the recent increase in the government's First Home Owners Grant," she said.

Ms Heffernan said the number of new fixed rate loans slumped to its lowest proportion of all home loans, 3.3 per cent, since the series began in 1991.

It was down from 23.9 per cent in March this year, Ms Heffernan said.

"This trend indicates buyer expectations of further interest rate cuts (including the one delivered by the RBA last week)," she said.

NabCapital senior markets economist David de Garis said falling interest rates and the rise in the first home owners grant was set to lift the ailing housing sector.

"But for now, a softening economy and employment conditions and poor market sentiment is likely to see dwelling investment make little to no addition to growth over the next year or so with house prices remaining sluggish," he said.

Source:http://www.news.com.au/heraldsun/story/0,21985,24629504-664,00.htm