Australia Bank Lending, House Price Gains Suggest Resilience to Rate Rises
Australian bank lending rose in May for a sixth month and house prices gained, a sign the nation’s housing market is weathering higher central bank interest rates.
Loans provided by banks and other finance companies advanced 0.5 percent from April, when they rose a revised 0.3 percent, the Reserve Bank of Australia said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg News was for a 0.4 percent gain. Lending increased 2.7 percent from a year earlier.
Central bank Governor Glenn Stevens has led Group of 20 policy makers by boosting borrowing costs six times since last October to prevent an economic recovery stoking house prices. Dwelling prices across Australia’s largest cities rose a seasonally adjusted 0.5 percent in May, taking the median price to A$468,000 ($397,000) for an annual gain of 12.1 percent, according to an RP Data-Rismark index released today.
“Housing finance to investors has picked up,” said Rod Cornish, head of property research at Macquarie Group Ltd. in Sydney. “We’ve already seen significant growth in the first half” in housing prices, he said. “That’s already locked in, and we’ll see more moderate growth in the second half.”
The Australian dollar traded at 84.89 U.S. cents at noon in Sydney from 84.82 cents just before the report was released. The two-year government bond yield was unchanged at 4.46 percent.
Loans to consumers to buy houses increased 0.7 percent from April and 8.6 percent from a year earlier, according to today’s report. Credit provided to consumers for purchases other than housing dropped 0.5 percent from a month earlier for an annual gain of 3.1 percent.
Lending to companies advanced 0.4 percent from the previous month, when it fell a revised 0.2 percent.
Still, there are signs that higher borrowing costs are prompting some home buyers to revise investment plans. Sales of newly built dwellings fell 6.4 percent in May from April, a separate report published today by the Canberra-based Housing Industry Association showed.
Governor Stevens boosted the benchmark rate by 150 basis points to 4.5 percent in May from a half-century low of 3 percent in early October, adding about A$3,600 a year to repayments on an average A$300,000 mortgage.
“There is no sustained upward momentum in new home sales in 2010 because higher interest rates and concerns over the threat of further rate hikes are damping demand,” said HIA Chief Economist Harley Dale in Canberra.
“The current recovery in new residential construction looks set to stall by mid next year and it is appropriate at this juncture that the Reserve Bank hold fire on further rate hikes not only next week, but through the remainder of 2010,” Dale said.
Governor Stevens, who chairs his next monetary policy board meeting on July 6, signaled on June 15 that the bank’s decision to return borrowing costs to average levels has given it flexibility to gauge any fallout from Europe’s debt crisis.
Policy makers have also said that inflation figures due July 28, six days ahead of the bank’s scheduled Aug. 2 meeting, will help show the degree of price pressures on the economy, according to minutes of their June 1 gathering.
Traders are betting there is no chance of a quarter-point increase at central bank monthly meetings until next year, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange.
“For now, the housing market is holding up rather well in most capitals,” said David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne.