Finance Loan

Nation's Home Buyers Drag Their Feet

11 July 2007

THE NUMBER of first-home buyers entering the market eased in May and home-loan approvals rose at the slowest pace in six months, adding to evidence that housing affordability is a problem across the nation.

Economists are also expecting the quarterly headline rate of inflation to pick up when consumer price index data is released later this month, but to ease over the year, meaning another rate rise is unlikely before early 2008.

The Bureau of Statistics data reveals housing finance approvals rose by 0.1 per cent in May, to 66,040 owner-occupied loans. But the total value of loans grew 2.7 per cent to $22.1 billion, with investment housing fixed loans up 8.9 per cent to $6.9 billion.

In original terms, the number of first-home buyer commitments as a percentage of total owner-occupied housing finance commitments decreased from 17.2 per cent in April to 16.6 per cent.

The number of fixed-rate loan commitments as a percentage of total owner-occupied housing commitments fell from 20 per cent in April to 17.4 per cent in May. But the average loan size for this group rose from $227,500 in April to $234,300 in May.

The Housing Industry Association's chief economist, Harley Dale, said the first-home buyer market was continuing to struggle. "The average number of first-home buyer loans written this year to date is little changed on the first five months of last year and the proportion of first-home buyers in the market has actually declined," he said.

Master Builders Association chief economist Peter Jones said the increased housing finance approvals were yet to translate into new dwelling activity.

"A jump in the value of loans for investment housing comes after two weak months . . . with the overall level of lending still well short of the peak in 2003," he said.

"However, the tight rental market does not appear to be attracting investors back into the market."

Businesses meanwhile are still reporting strong levels of business activity, and are positive about the future, with NAB's monthly business survey showing business confidence and conditions unchanged at high levels. The business conditions index fell just 1 point to 16 index points, while the confidence index was unchanged at 15 points.

NAB chief economist Alan Oster said three components of the conditions index, trading, profitability and employment, performed well in June and the underlying movements were beginning to show significant changes.

"In particular, after a period of surprising 'relative' weakness, mining confidence and conditions have surged - thereby boosting Western Australian activity further," he said.

Mr Oster said interest rates should remain on hold this year, with wage increases staying "reasonably well behaved". But there was a risk wages growth would accelerate under tight labour market conditions. The official employment figures will be out tomorrow.

ANZ economists are tipping the CPI figures to show continued low annual inflation, but expect accelerating demand pressures to ensure inflation returns to the top half of the Reserve Bank's 2 to 3 per cent target band from next year.

KEY POINTS

? Housing finance approvals rose by 0.1 per cent but the value of loans grew 2.7 per cent.

? Businesses report strong levels of business activity, and are positive about the future.

LINK

? www.nabmarkets.com

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