Earlier interest rate cuts spur activity
Sunnier days ahead? The sector still has the blues. Photo: Tamara Voninski
SIGNS of life have returned to the mortgage market, suggesting the effects of earlier interest rate cuts are starting to spur activity in the housing sector.
Home loans increased a bigger-than-expected 1.8 per cent in August, following a 1 per cent fall in July, according to the Australian Bureau of Statistics.
Economists had expected a rise of 1.5 per cent in the month, as the effects of earlier rate cuts filtered into the economy.
The official data is the latest piece of positive news for the housing market, which has seen increased activity in recent weeks.
''The slight pick-up in housing finance indicates that conditions in the housing market may be showing signs of improvement, although annual growth remains soft,'' said St George Bank senior economist Jo Heffernan.
The figures show borrowers are again starting to pile into fixed-rate loans. The proportion of total housing finance at fixed rates increased to 11.2 per cent in August, up from 9.9 per cent in July. The proportion of fixed-rate loans peaked at a little more than 25 per cent in early 2008 as official cash rates moved higher.
Despite the home loans rise, JPMorgan economist Ben Jarman said the figures did not show much of a turnaround. ''It's an August number, so it's capturing more of the RBA's work since the middle of the year,'' he said. Also, house prices had slipped from the middle of 2010 to the middle of this year.
''Those two factors have combined to force marginal buyers in, once the interest rate got low enough,'' he said. ''The question is, is that sustainable? With the credit growth remaining low, we don't see the fuel for that much housing market turnover. We think the lack of traction is going to be one of the reasons the RBA cuts further.''
Mr Jarman said overall household debt was a ''pretty significant'' constraint to further activity in the housing sector.
Housing investment lending fell 0.8 per cent in August, after a 2.7 per cent drop in July, the ABS said, while the value of owner-occupied home loans rose 1.3 per cent in August, from a fall of 1.4 per cent in July.
The Reserve Bank has cut 150 basis points from the cash rate since November last year. Since then, the big banks have passed on an average of about 115 basis points of cuts.