Home loan approvals jump

Home loan approvals bounced in December, rising by the most in almost nine years as the First Home Owners Grant and rate cuts enticed first-home buyers.

To prevent a collapse in property prices and boost house building, the government in October tripled a grant to first-time buyers of new homes to A$21,000 and doubled it to $14,000 for those purchasing established dwellings. This came at a time when the RBA was slashing the cash rate and a further cut by the RBA on February 3 to 3.25% is likely to further stimulated the market.

“As in other countries, substantial monetary and fiscal measures have been taken to support growth,” the Reserve Banks Assistant Governor Malcolm Edey told a conference organised by the Committee for Economic Development of Australia. “But an important difference is that the Australian financial system remains in much better shape than its international counterparts.”

The comparative strength of the Australian economy has allowed rate cuts to have a pronounced effect in Australia, especially when it comes to housing loans.

“This is in marked contrast to other countries, where banks have been more heavily affected by financial strains and the degree of pass-through has been much more limited,” Mr Edey concluded.

The number of home loans on a seasonally adjusted basis ballooned by 6.4% in December - according to ABS data - the third consecutive monthly increase. In all, first home buyers accounted for over a quarter (25.4%) of loans for the month, the highest proportion since 2001.

"The sharp policy u-turn by the RBA and government incentives for first home buyers have triggered a rebound in the demand for finance," Westpacs Chief Economist said in a note to clients. "We expect housing finance to rise further in the months ahead. However, as unemployment begins to lift significantly, the pace of recovery will be crimped."

Home loan approvals were seen to rise in all states and territories, with the ACT (31%) and Tasmania (3.9%) representing the largest and smallest increases, respectively.

Posted Wednesday 11th of March 2009, 6:00 PM