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Home Loan Approvals down in December 2009

HOME loan approvals dropped for a third straight month in December after a reduction in government subsidies and interest rate rises dampened enthusiasm for home loans, economists say.

Australian housing finance commitments for owner-occupied housing fell 5.5 per cent in December, seasonally adjusted, to 55,632 the Australian Bureau of Statistics (ABS) said.
That was weaker than economists' expectation for a fall of five per cent in the month.
Total housing finance by value fell by 2.8 per cent in December, seasonally adjusted, to $21.900 billion.

NAB senior economist David de Garis said the pullback in approvals for housing loans was expected after Federal Government stimulus measures were wound back and increases to interest rates during the final quarter of 2009.

The Federal Government reduced the FHOG boost from $21,00 to $14,000 in October 2009, and subsequently has cut the FHOG to $7,000 on January 1 this year. The RBA raised the overnight cash rate by 25 basis points to 3.75 per cent on December 1, following similar moves in October and November.

Subquently, the central bank left the cash rate unchanged on February 2. "It is probably largely due to the departure of the first home buyers, who did all their borrowing and buying in the past months,'' Mr de Garis said.

Loan approvals for the building of dwellings fell for the second consecutive month, down 6.4 per cent in December, the ABS said. Demand for mortgages to buy new houses bucked the negative trend, up 3.0 per cent in the month, while loans for investment housing rose 1.9 per cent.

Why did RBA leave interest rates on hold ?

Everyone in the know was predicting that rates will be brought up again in February 2009.
Everyone was stunned to see RBA leave interest rates on hold at 3.75 percent and sparing nervous homeowners more financial pain.

But what prompted the RBA’s board, a group of economists and senior business people who decide whether interest rates should rise or fall, to stay put? Officially we are told that the RBA would like to see the fall out from the 3 earlier increases before making a decision on further movements.

While the RBA has hiked rates by 75 basis points since October, real rates have risen by around 1 percent due to the extra hikes passed on by the big retail banks. This has allowed the RBA to leave rates on hold this week. So, can home owners relax?

In his post-decision statement, RBA boss Glenn Stevens signalled that rates remain “lower than average” and fired a warning shot that more rate rises may be on the way. “If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term,” he said.

In other words, we are given a very strong indication that rates will rise again soon.
How soon is not clear but economists at Westpac reckon rates will rise next month.