Rising home loans could tip recovery

by AAP December 10, 2008 12:45pm
THE number of home loans rose 1.3 per cent in October, to the highest level all year, and economists say it could signal the start of a recovery.

The number home loans for owner-occupied housing rose 1.3 per cent in October, to 48,299, according to Australian Bureau of Statistics data.

The loans were worth a total of $17.7 billion, up 1.9 per cent in October, and above economists expectations of a 1.5 per cent increase.

Westpac economists said in a research note that the rise housing finance in October signalled the start of a recovery for the housing market.

"While it was only a modest rise in October, we see it as the beginning of a recovery,'' Westpac said.

"This will act to support house prices and trigger a recovery in new dwelling construction.''

Westpac said the RBA's decision to slash interest rates by 300 basis points since September, and the federal government's stimulus package for first home buyers, would breathe life back into the housing market.

"However, rising unemployment and tighter lending standards in response to the credit crisis will act to crimp the pace of recovery."
Related Coverage

* Buyers beware as housing market stallsNEWS.com.au, 27 Oct 2008
* House prices down 10 per cent in 2008NEWS.com.au, 14 Oct 2008
* Rates bite at home loan numbersNEWS.com.au, 14 Apr 2008
* Mortgage battlers told to get out nowNEWS.com.au, 1 Jul 2008
* First-time buyers storm marketNEWS.com.au, 16 Oct 2008



The rise in housing finance commitments came after a 29 per cent fall during the previous 8 months.

JPMorgan economist Helen Kevans said the prospect of more interest rate cuts would bring more buyers to the housing market.

"Many first home buyers should, however, be attracted to the property market by further interest rate cuts,'' said Ms Kevans.

JP Morgan forecasts the RBA will lower the cash rate by 50 basis points at their next meeting in February, and by another 25 basis points in March to a 3.5 per cent rate.

The cash rate has not been at 3.5 per cent since early in 1965.

Banks must pass on the RBA rates cuts Good New for Home Buyers

Reserve Bank Interest Rates Drop to 4.25 per cent – 2 December 2008

The current RBA interest rate has dropped to just 4.25 per cent, after the Reserve Bank board announced another aggressive rate cut of 100 basis points at its December board meeting today.

Today’s cut takes the current RBA rate to its lowest level since December 2001, as the Reserve Bank seeks to stimulate economic growth and counter falling inflation.

The cut to the current RBA interest rate follows earlier cuts of 75 basis points in November and 100 basis points in October, taking total rate cuts over the last three months to a whopping 275 basis points.

Some pundits are predicting rates still have further to fall, with suggestions the RBA interest rate could fall to as little as 2.75 per cent by Easter 2009. This would be the lowest the RBA interest rate has been since 1960!

December’s rate cut is good news, but whether homeowners will see the benefit of reductions in their mortgage repayments in time for Christmas depends on whether their lender is naughty or nice in passing on the RBA’s rate cut.
Below are the ones first to pass on the rates cuts:

CBA & NAB before 7.74% now 6.74%
Aussie before 7.65% now 6.65%
ING Direct before 7.19% now 6.19%

Stay tuned for more