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Aust: home loans fell for fifth straight month

Australia: home loans fell for fifth straight month in June

Demand for housing finance fell for the fifth straight month in June. The number of home loans issued fell 3.7%m/m (JPMorgan -3.5%, consensus -2.0%) after falling a revised 6.9% in May (previously 7.9%). The fall was owing to a 2.7%m/m drop in loans for the construction of dwellings and a 4.2% drop in loans for the purchase of established dwellings. Home loans for the purchase of new dwellings were up 6.9%m/m in June.

Interestingly, fixed rate loans as a percentage of all dwellings financed declined from 13.0% to 11.7% in June, the lowest level since October 2005, and well down from the 23.9% recorded in March, when many borrowers locked in fixed rates amid speculation that interest rates could go higher.

Investors continued to account for just over a third of total home loans in June. These investors are usually existing property owners able to receive significant tax benefits from buying property. First home buyers, though, continue to suffer amid record low levels of housing affordability, and accounted for only 17.6% of home loans in June.

The number of home loan commitments has trended lower in the wake of the four interest rate hikes delivered by the RBA since August, which have been topped up by disproportionate rises in domestic banks' standard variable loan rates. But, although the RBA has left interest rates steady since March, leading housing market indicators, like auction clearance rates, have been deteriorating, so any improvement that may emerge in demand for home loans in the near term probably will stem from speculation that the RBA will soon cut interest rates.

A cut to the official cash rate this year, or possibly two, appears to be on the RBA's agenda. The dovish tone of the commentary accompanying the RBA's decision to leave interest rates unchanged yesterday suggests the Board is very close to cutting the cash rate. On our forecast, the first rate cut could come as early as September, and another 25bp rate cut before the year end are likely.

The details:

• The number of commitments for owner-occupied housing finance fell 3.7%m/m, the fifth straight monthly fall.
• In value terms, home loans fell 0.9%m/m, owing to both owner occupied housing finance (-1.1%) and investment lending (-0.3%).
• Investors accounted for 30.9% of total loans, while first home buyers accounted for 17.6%.
• Fixed rate loans as a percentage of all dwellings financed stood at 11.7%, the lowest level since October 2005.


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