Tuesday, November 10, 2009

The deadline that'll fuel a construction boom

The scene is set for a home construction boom after a record number of Australians rushed to take advantage of the First Home Owners Boost in September ahead of the wind-back of the scheme from October.

More than 49,000 Australians took out mortgages that for purposes other than refinancing in September, a seasonally-adjusted record. Around 7600 were construction loans, the most since 1994.

Borrowers who entered into contracts to build new homes before September 30 were eligible for the $14,000 temporary First Home Owners Boost on top of the $7000 first home owner grant. From October 1 the Boost fell to $7000 and will vanish altogether in January...

First home owners buying existing houses were eligible for $7000 on top of the $7000 grant, but are now able to get a boost of only $3500, and nothing from January.

"It's one last surge," said ANZ economist Alex Joiner. "Things will moderate from what has been frenetic activity over the last few months. This is not only as the grants are wound back but also as interest rates rise."

Westpac economist Andrew Hanlan said the surge would ignite a construction boom. "The upswing should kick-in late this year and become a key growth engine of the economy through 2010," he said.

"Its not only first home buyers. Upgraders are continuing to respond to what are still extremely low interest rates. Finance to upgraders is up 34 per cent so far this year."

The Bureau of Statistics figures show lending to first home borrowers up an extraordinary 86 per cent in the year to September with lending for construction up 84 per cent. Lending to investors is up 18 per cent.

The latest RP Data house price index shows the typical Sydney price passing $600,000 and the typical Melbourne price approaching $500,000 after swelling 9 per cent and 13 per cent in the past year.

Apartment prices are cheaper and the houses bought by first home buyers are usually much cheaper.

The government yesterday opened tenders for the second round of grants from the Commonwealth's $512 million Housing Affordability Fund which will subsidise the infrastructure costs of new developments in return for guarantees that a certain proportion of the homes will be made available to low and middle income earners.

An Essential Media poll released yesterday found that only 41 per cent of Australians expected the latest round of interest rate increases to make them worse off and only 10 per cent expected to be much worse off.

Asked what the interest rate hikes indicated 53 per cent said they showed the economy was getting better and only 12 per cent getting worse.

The ANZ measure of newspaper job advertisements took a breather in October, slipping 1.4 per cent after gains of 3.7 and 5.5 per cent.

"It's not a concern, yet," said CommSec economist Craig James. "The lift over the past three months is still the strongest gain for almost two years. It is understandable that employers are still a little cautious to take on more staff. Most will meet demand by getting staff to work longer hours. Only when the lift in work looks sustainable will they hire."

Published in today's SMH and Age

Graphic: catalogs.com

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