Australia | Mar 10 2010
By Chris Shaw
Australian housing finance approvals for January surprised to the downside today with the number of owner-occupier finance commitments falling by 7.9% for the month, well below the market's expectation of a 2.0% increase.
Westpac suggests the weaker than expected figures were due to the combination of higher interest rates and the end of additional incentives for first home buyers, so it sees scope for a further softening in coming months.
ANZ economist David Cannington notes the exodus of first home buyers meant approval numbers in this category were down 11.3% for the month after a 10.1% fall in December. Upgrader numbers were also weak, down 6.9% for the month.
The value of total housing finance commitments was also lower, falling 3.3%, compared to a 2.6% fall in December. Cannington notes the value of owner-occupier approvals were down 5.0% against a 0.9% increase in the value of investor approvals.
This shows there are signs of investor interest returning to the market, Westpac pointing out investor finance has risen in four of the last five months and is now 28% higher than the lows seen in February of last year.
The numbers don't change Westpac's view a housing upswing over the first half of 2010 is assured, as while finance for the construction of new dwelling fell 3.9% in January it is up 69% from August 2008. The stronger investor numbers lead Westpac to suggest the upswing is evolving as would be expected.
Cannington is not as bullish, taking the view the fall in construction loan approval for January, coming on the back of a 7.3% fall in December, means the recent upswing in building approvals may start to run out of legs going forward.
He does point out if this occurs it means the Australian housing market will remain well short of the supply needed to keep up with still strong demand, further entrenching the current shortage in domestic housing.
Cannington also notes weaker housing demand could see some moderation of house price growth this year, which he suggests would be a relief after the double-digit gains recorded in 2009.
CommSec economist Savanth Sebastian agrees, taking the view enthusiasm in the housing sector is likely to be dampened by the combination of further expected increases in interest rates and stimulus payments being pared back.
Any downside is likely to be limited though, as in Westpac's view there remains potential for the Reserve Bank of Australia (RBA) to pause in its rate hike cycle mid-year. This implies some scope for housing finance to gain a second wind later in 2010 given a strong labour market, solid population growth and pent-up demand for housing.
Westpac notes the Australian dollar was sold off on the back of the housing finance figures, trading around the 0.9130 level against the US dollar shortly after the release. Downside should be limited in its view, with the next level of support currently at the 0.9110/15 US dollar level.
Market expectations for interest rates are essentially unchanged post the housing finance number, Westpac pointing out the market continues to price in a 33% chance of a rate hike at the RBA meeting next month.
CommSec expects the RBA will pause on rates at its April meeting but sees the cash rate hitting 4.75% by the end of 2010.