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Australian Home-Loan Approvals Drop by Most in Five Months

Australian home-loan approvals unexpectedly fell in July by the most in five months as the highest interest rates among major developed economies discouraged buyers from entering the market.

The number of loans granted to build or buy houses and apartments declined 1 percent from June, when they rose a revised 1 percent, the statistics bureau said in Sydney today. The median estimate in a Bloomberg News survey of 16 economists was for approvals to be unchanged.

The data add to evidence the economy is weakening after government reports last week showed retail sales unexpectedly fell, employers unexpectedly cut 8,800 workers and the nation recorded its seventh straight monthly trade deficit. Most economists surveyed by Bloomberg say Reserve Bank of Australia Governor Glenn Stevens will resume lowering rates in November from the current 3.5 percent after cuts in May and June.

“Potential buyers are reluctant to return to the property market despite looser monetary settings,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “Until there is a sustained improvement in sentiment, housing finance growth will keep disappointing.”

The Australian dollar was little changed after the data, trading at $1.0382 at 12:19 p.m. in Sydney from $1.0367 before the release.

Investment Purchases

The report showed the total value of loans fell 1.8 percent to A$20.1 billion ($20.9 billion) in July.

The value of lending to owner-occupiers declined 1.4 percent from a month earlier, the report showed. The value of loans to investors who plan to rent or resell homes dropped 2.7 percent.

First-home buyers accounted for 19.2 percent of dwellings financed in July, up from 18.5 percent in June and higher than 16.5 percent a year earlier, the report showed today.

Australia’s economy slowed last quarter on weaker housing and rising imports, a government report showed Sept. 5. Gross domestic product advanced 0.6 percent from the previous three months, when it rose a revised 1.4 percent.

Australian home-building approvals declined in July by the most in almost a decade as weakness outside the resources industry hurt housing, government data showed Aug. 30. Two days earlier, a private report showed sales of newly built homes dropped to the second-lowest level on record in July.

Rate Cuts

Australia’s central bank lowered borrowing costs by a total of 50 basis points late last year and a further 75 basis points in May and June to help shield the economy from Europe’s debt crisis and slower growth in China. It held the key rate at 3.5 percent, the highest among major developed economies, at the past three meetings.

Reflecting expectations of lower benchmark borrowing costs, Australia’s two largest lenders, Commonwealth Bank of Australia and Westpac Banking Corp., reduced their rates on fixed mortgages in recent days.

Australian house prices unexpectedly rose in the three months through June, ending five straight quarters of declines, a government report showed Aug. 1.

“The housing market is just going sideways,” said Spiros Papadopoulos, Melbourne-based senior economist at National Australia Bank Ltd. that predicted today’s 1 percent decline in home loans. “The downward trend has ended, but over the past three or four months we’ve just seen a bit of a flatline in activity so obviously that’s been supported by the rate cuts that we’ve had over the past eight or nine months.”

The jobless rate, at 5.1 percent in August, is lower than 8.1 percent in the U.S. and 11.3 percent in the euro area.

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