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Australian Home Loans, Confidence Drop Pressures Rates

Residential buildings stand in the suburb of Waterloo in Sydney, Australia. Photographer: Brendon Thorne/Bloomberg
Residential buildings stand in the suburb of Waterloo in Sydney, Australia. Photographer: Brendon Thorne/Bloomberg

April 11 (Bloomberg) -- Australian home-loan approvals fell for a second month on the fastest exodus of first-home buyers in a decade, increasing pressure on the central bank to cut interest rates as consumer confidence weakens.

The number of loans granted to build or buy houses and apartments fell 2.5 percent in February from a month earlier, the biggest drop since March 2011, the statistics bureau said in Sydney today. A private survey showed consumer confidence declined to an eight-month low as concerns mount among mortgage holders paying the highest borrowing costs across major developed nations.

Reserve Bank of Australia Governor Glenn Stevens signaled last week he may end a three-month pause in rate cuts as soon as next month if weaker-than-forecast growth slows inflation. The central bank lowered borrowing costs in November and December, to 4.25 percent, to buttress the housing market, support jobs and boost confidence among consumers who are saving more.

The data “underscore a pretty soft underbelly in terms of the Australian household sector: they’re cautious, they’re not feeling so great, they’re not borrowing,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC Capital Markets in Sydney. “At the margins, it adds to the case to further easing by the RBA.”

Local Currency

The Australian dollar hovered near a three-month low, trading at $1.0298 at 4:35 p.m. in Sydney. Traders are pricing in a 91 percent chance the RBA will reduce borrowing costs by a quarter percentage point at the next policy meeting, a Credit Suisse Group AG index showed.

The Australian Chamber of Commerce and Industry today urged the RBA to cut rates by half a percentage point to arrest declining competitiveness and “break through” low business and consumer confidence.

“History shows that delays or timidity in adjusting monetary policy when structural changes like the high dollar and lower competitiveness are embedding themselves in our economy have costly repercussions for business viability and jobs,” Peter Anderson, chief executive officer of the ACCI, said in a statement.

Government figures tomorrow are expected to show unemployment rose to 5.3 percent in March from 5.2 percent a month earlier, according to the median of 24 economists surveyed by Bloomberg. Employers probably added 6,500 jobs, the poll showed, almost one-third the average monthly growth in employment during the past decade.

Home Lending

Today’s home-loans report showed the total value of loans fell 1.3 percent to A$20.3 billion ($20.8 billion) in February.

The value of lending to owner-occupiers declined 4 percent, the report showed. The value of loans to investors who plan to rent or resell homes advanced 4.4 percent.

First-home buyers accounted for 17.2 percent of dwellings that were financed in February, down from 20.3 percent in January and higher than 16 percent a year earlier, the report showed. That was the steepest fall since February 2002, according to data compiled by Bloomberg.

Home-loan approvals rose for nine months through December, before falling a revised 1.1 percent in January, today’s report showed.

“We had this sort of modest upswing throughout a lot of last year and that was assisted by some stamp-duty concessions for first-home buyers in New South Wales and some grants in Queensland,” RBC’s Ong said, referring to two Australian states. “But that seems to be fading and the data is consistent with that.”

Biggest Banks

Home-loan growth may weaken further after Australia’s four biggest banks raised standard variable mortgage rates independently from the RBA in February, drawing criticism from the government. The central bank has said that competition for deposits, recent covered-bond sales and the cost of swapping funds raised offshore into Australian dollars added to the price lenders paid to raise money.

“Housing market conditions remain soft,” with preliminary data indicating “that dwelling prices have fallen a little in early 2012,” the central bank said in its financial stability review released last month.

Today’s consumer confidence report showed the sentiment index dropped 1.6 percent to 94.5 in April, the weakest reading since August. The Westpac Banking Corp. and Melbourne Institute survey was taken April 2-5 and involved 1,200 consumers.

‘Clear Message’

“The Reserve Bank disappointed many last week by not delivering a much-needed rate cut,” Bill Evans, Westpac’s chief economist, said in a statement, noting confidence among borrowers slumped 5.1 percent. “The results of this survey should be sending a very clear message to the Reserve Bank that Australia needs lower interest rates.”

The government will maintain the central bank’s independence and resist controls on the local currency, Finance Minister Penny Wong said in an Australian Broadcasting Corp. radio interview in response to a union chief calling for intervention to aid struggling manufacturers.

“In terms of a proposition that you peg the dollar or intervene in interest rates, the government will not be doing that,” Wong said today. “The settings that have served Australia well, including through this investment boom, include the independence of the Reserve Bank in setting interest rates and the floating dollar.”

Paul Howes, national secretary of the Australian Workers Union, said the RBA has consistently made the wrong call on setting rates and that high borrowing costs are spurring the currency.

To contact the reporter on this story: Michael Heath in Sydney at

To contact the editor responsible for this story: Stephanie Phang at

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