Bloomberg News

Australia Home-Loan Approvals Rise as Consumer Sentiment Gains

October 11, 2011

Oct. 12 (Bloomberg) -- Australian home-loan approvals rose in August for a fifth straight month and consumer confidence extended its rebound from a two-year low as the central bank left interest rates unchanged.

The number of loans granted to build or buy houses and apartments gained 1.2 percent from July, when they rose a revised 1.9 percent, the statistics bureau said in a report in Sydney. Also today, a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers taken Oct. 3-8 showed the consumer sentiment index rose 0.4 percent to 97.2. The gauge had dropped to 89.6 in August, the lowest since May 2009.

Reserve Bank of Australia Governor Glenn Stevens last week left the benchmark interest rate at 4.75 percent, citing “very unsettled” global markets and signs of weaker domestic growth. Stevens, who has kept borrowing costs unchanged for 11 months, signaled less concern a mining boom will boost wage pressures and said there’s more scope to cut rates if necessary.

“We’ve had a period of rate reprieve that’s approaching a year and that’s probably encouraged some people” to borrow, said Michael Turner, an economist at RBC Capital Markets Ltd. in Sydney. “We are in a bit of a holding pattern at the moment. Confidence has rebounded off some pretty big lows, and I think people are just waiting for things to become clearer, to see if the labor market softens further and what happens offshore.”

First-Home Buyers

First-home buyers accounted for 15.3 percent of dwellings that were financed in August, up from 14.9 percent in July, today’s report showed. That was the first increase since March.

Australian consumer confidence was little changed in October as the possibility of lower rates offset global turmoil.

“Financial markets were again unsettled with sharp falls in both the share market and the Australian dollar,” Bill Evans, Westpac’s chief economist, said in a statement. “On the positive side we saw a marked change in the rhetoric of the Reserve Bank. After discussing the option of raising interest rates as recently as August the bank reported that it had adopted an easing bias.”

The Australian dollar, the world’s fifth-most traded currency, dropped 10 percent last month after reaching a record- high $1.1081 on July 27, amid speculation Greece will default and spur a repeat of the 2008 credit freeze that followed the collapse of Lehman Brothers Holdings Inc.

Currency Reaction

The currency weakened after today’s home loans report, trading at 99.01 U.S. cents at 1:32 p.m. in Sydney from 99.34 cents before the data and 99.52 cents yesterday in New York.

The total value of loans rose 1 percent to A$20.8 billion ($20.6 billion) in August, today’s report showed.

The value of lending to owner-occupiers gained 0.6 percent, it showed. The value of loans to investors who plan to rent or resell homes advanced 1.8 percent.

A report tomorrow will show Australian employers added 10,000 jobs in September, snapping a two-month drop, according to economists in a separate Bloomberg News survey. The jobless rate likely held at 5.3 percent.

An index measuring the weighted average of prices for established houses in eight major cities declined 0.1 percent in the second quarter to the lowest level since 2009.

That Aug. 2 government report showed house prices fell 1 percent in Perth and dropped 1.6 percent in Darwin from the previous quarter, while they advanced 0.4 percent in Sydney and gained 1.1 percent in Canberra. In Melbourne, prices slipped 0.1 percent.

A jump in home prices was among the reasons Stevens increased the benchmark rate by 175 basis points from October 2009 to November last year.

Evans, who in July predicted the RBA would reduce rates at its December meeting, said while that remains his view, a cut next month “is quite real.”

--With assistance from Daniel Petrie in Sydney. Editors: Garfield Reynolds, Edward Johnson

To contact the reporter for this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang in Singapore at sphang@bloomberg.net


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