Thursday, June 09, 2011

There's the housing rally. And there's the Easter bunny

Lending for housing rebounded in April after falling for three successive months. But commitments remain below their level of mid last year and well below the stimulus-fuelled peak of late 2009.

The 4.8 per cent rebound follows slides of 6.8, 4.8 and 1.1 per cent.

Lending for the purchase of new houses jumped 9.4 per cent and lending for established houses 5.1 per cent.

“It would be wrong to read this as a strong number,” said Credit Suisse consultant Sean Keane. “It’s a slowing of the recent much needed downtrend.”

“The overall number of loans to owner occupiers for established dwellings is still down nearly 20,000 per month on the numbers seen in June 2009 when the first home-owners grant hit the market. On a trend basis we are still below the path that has directed activity over the past 30 years, although from the Reserve Bank’s perspective some of the slowdown is welcome.”

On Tuesday the Reserve Bank board identified “modest overall credit growth” as one of the reasons it had decided to keep interest rates on hold.

It said while business credit had expanded after a period of contraction “growth in credit to households has softened, as have housing prices.”

In April finance commitments for owner occupied houses rebounded 2.1 per cent in NSW, 4.1 per cent in Western Australia and Victoria and 6.2 per cent in Queensland, possibly because of rebuilding after the floods.

“I am inclined to view it as a modest give back after recent falls and an Easter effect,” said Westpac economist Andrew Hanlan... “The later than usual Easter may have brought forward activity in April ahead of the holiday disruption".

“To put it in context, the level of finance to owner-occupiers in April was still 5.7 per cent below the average level during the December quarter. A fall of that magnitude is broadly consistent with the historical relationship between housing finance and interest rate movements. And I am mindful that other indicators and anecdotes suggest the housing sector remains subdued.”

Loans for investment purposes fell a further 1.6 per cent in April, leaving them down 16 per cent over the year.

The proportion of first home buyers in the market fell from 16 per cent to 15.8 per cent – well below the ten year average of 18.2 per cent.

Fixed rate loans accounted for just 5.6 per cent of all loans in April, down from 6.8 per cent continuing a gradual move down over the past four months.

“It suggests variable rate borrowers are as relaxed about the prospects of an Reserve Bank rate hike as traders,” said Mr Keane. “ The average share of loans written at fixed rates has been 10 per cent since over the past decade, so at 5.6 per cent we are more relaxed than average.”

Published in today's SMH and Age

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