Nov. 8 (Bloomberg) -- Australian home-loan approvals fell by the most in more than a year in September as rising interest rates deterred buyers, signaling housing may curb growth in the Asia- Pacific region's fifth-largest economy.

The number of loans to owner-occupiers to build or buy homes or apartments dropped 1.2 percent to 62,083 from August, the Bureau of Statistics said in Sydney today, matching the decline in May 2005. The median forecast of 21 economists in a Bloomberg News survey was for a 3 percent fall.

The Reserve Bank of Australia raised its benchmark interest rate today for the third time this year to stem inflation. The highest borrowing costs in almost six years may stifle a housing recovery that began earlier this year, putting a brake on the economy's 15-year expansion.

``The first two interest-rate increases have put incredible pressure on housing,'' said Simon Tennent, executive director of housing and economics at the Housing Industry Association in Canberra. ``The economy will come under pressure from the fallout in the housing market.''

The Australian dollar bought 77.06 U.S. cents at 4:43 p.m. in Sydney trading from 77.29 cents immediately before the report. The yield on the benchmark 10-year government bond fell 3 basis points to 5.65 percent. A basis point is 0.01 percentage point.

Investor Loans

Shares in CSR Ltd., a maker of building materials, fell 5.2 percent to A$3.31 at the 4:10 p.m. close in Sydney after the company said first-half profit fell 4.7 percent on reduced earnings from its building products division.

Total lending fell 3.3 percent to A$19.1 billion ($14.8 billion) in September, today's report showed. The number of loans approved in August dropped a revised 1.1 percent.

The value of lending to owner-occupiers declined 2.3 percent to A$13.6 billion in September, today's report showed. The value of lending to investors who plan to rent or resell homes dropped 5.5 percent to A$5.6 billion.

The Reserve Bank's three quarter-point increases this year have taken the overnight cash rate target to 6.25 percent, matching a 10- year high last seen in January 2001.

Each interest-rate increase adds about A$40 a month to repayments on an average home loan of A$250,000, according to the Housing Industry Association.

Economic Growth

Housing may now curb the economy's expansion. In the second quarter, home-building made its first positive contribution to economic growth for a year.

The economy grew just 0.3 percent in the three months to June 30 from the previous quarter. Housing contributed 0.2 percentage points.

New home sales fell 3 percent in September from a month earlier, the Housing Industry Association said on Oct. 31.

The number of loans to buy newly built dwellings fell 3.7 percent in September, today's report showed, and loans to build houses dropped 1.2 percent.

Once interest rates stop rising, home-buyers may return to the market, according to Andrew Hanlan, senior economist at Westpac Banking Corp. in Sydney. He predicted this would happen next year.

``The fundamentals on the demand side -- population growth, labor-market strength and a tight rental market -- mean that once interest rates are stable, the housing market will start to recover,'' Hanlan said.

Unemployment was at a 30-year low 4.8 percent in September, and the number of skilled migrants to Australia climbed 12 percent in the year to June 30. Rental vacancies in major cities are at a nine- year low.

The number of loans to first-home buyers as a proportion of all loans rose to 17.4 percent in September from 16 percent the previous month, today's report said.

To contact the reporter on this story: Hans van Leeuwen in Sydney at hvanleeuwen1@bloomberg.net.

Last Updated: November 8, 2006 00:52 EST