Home Loans | Home Loans Buoyed By Rate Cut

January 26, 2012 – 6:14 am

The number of home loans rose in November, buoyed by the Reserve Bank’s Melbourne Cup Day interest rate cut.

Home loans rose 1.4 per cent in November after rising 0.8 per cent in October, according to the Australian Bureau of Statistics. Economists had been expecting a 1 per cent gain in November.

Investment lending rose 1.8 per cent in November, after a 5 per cent fall in October.

Two consecutive interest rate cuts by the Reserve Bank, starting in November, may have contributed to stabilising the housing market, which was in the doldrums through most of 2011.

But the household sector’s renewed tendency to pay down debt and avoid sizeable borrowings is expected to cap activity in the housing market, creating headwinds for new lending, home prices and construction activity.

Cash-rate futures indicate a 64 per cent chance the RBA will cut rates when it meets again on February 7, down from 100 per cent late December. Markets are still tipping the RBA’s key cash rate will fall to 3.25 per cent by September, as the central bank adjusts the cash rate in response to slower growth and higher uncertainty. The cash rate is currently at 4.25 per cent.

HSBC chief economist Paul Bloxham said the RBA’s interest rates cuts were supporting the housing market after a period of weakness.

“I think we’re seeing some very early signs of stabilisation in the housing market,” said Mr Bloxham. “Another sign is the house prices data for November – it’s begun to level out as well.”

Capital city home prices rose 0.1 per cent in November, but still posted a 3.5 per cent drop in the 11 months to that period, according to RP Data.

“Australia has some potent policy tools and one of those is the RBA’s cash rate,” said Mr Bloxham.

He didn’t expect households’ current preference to pay down debt to have a dampening effect on borrowing.

“I think we’ve already seen households move some way down that path,” said Mr Bloxham. “We’re starting to see the impact of the RBA’s handiwork on the economy.

“I think the monetary transmission mechanism will work much as it does in the past,” he said.

Home loans for owner occupied properties rose 4.2 per cent in New South Wales but slipped 0.2 per cent in Victoria. In Queensland they increased 0.9 per cent in the month, matching Western Australia’s gain.

In South Australia they fell 0.3 per cent, while in the Northern Territory they fell 0.6 per cent. In Tasmania they rose 3.9 per cent, in the month.

czappone@fairfax.com.au

This reporter is on Twitter: @chrizap