Australian Home Sales Fall to 2-Year Low, Lending Growth Slows

By Jacob Greber

Aug. 29 (Bloomberg) -- Australian new home sales fell to a two-year low in July and lending to consumers and businesses rose at the slowest annual pace since 2002, reinforcing speculation the central bank will cut interest rates next week.

Sales of newly built homes dropped 7.2 percent from June, the Housing Industry Association reported in Canberra today. Total credit provided by banks and other finance companies climbed 11.2 percent from a year earlier, the smallest gain since August 2002, the Reserve Bank of Australia said in Sydney.

Slower credit growth and declining demand for property is further cooling an economy that expanded at the weakest pace in almost two years in the first quarter. The central bank said last week it may soon cut interest rates from a 12-year high to avoid a ``deeper and more persistent'' economic slowdown.

``Today's data do confirm that a 25-basis-point rate cut is on the way next Tuesday,'' said Alex Joiner, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne. ``Consumers are pulling back on spending as pressures on household budgets build.''

Reserve Bank Governor Glenn Stevens and his board meet on Sept. 2 and will lower the benchmark rate by at least a quarter- point to 7 percent, the first cut in seven years, according to all 20 economists surveyed by Bloomberg News today.

The Australian dollar fell to 86.37 U.S. cents at 12:44 p.m. in Sydney from 86.43 cents before the lending report was released. The two-year government bond yield dropped 1 basis points, or 0.01 percentage point, to 5.73 percent.

Consumer Borrowing

Credit provided to consumers for purchases other than housing dropped 0.7 percent in July from a month earlier, the biggest decline since December 1992, the central bank report showed. That type of lending rose 3 percent from a year earlier, the smallest annual gain in 14 years.

Harvey Norman Holdings Ltd., Australia's largest furniture and electronics retailer, today posted a 43 percent decline in second-half earnings as consumers reined in purchases.

``The last six months have been challenging,'' Chairman Gerry Harvey said in a report. Higher interest rates, rising fuel prices and increasing living costs are ``negatively impacting consumer sentiment,'' he said.

Sales of detached homes slumped 7.5 percent in July and sales of apartments declined 5.2 percent last month, according to the Housing Industry Association's figures.

The report reinforces ``industry evidence that home building conditions hit the wall in early July,'' said Harley Dale, chief economist at the association, which represents building companies.

``The imminent move to lower interest rates is a welcome first step to a much-needed home building recovery.''

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net