Australia's Home-Loan Approvals Drop to Four-Year Low

By Jacob Greber

Aug. 6 (Bloomberg) -- Australian home-loan approvals fell to a four-year low in June, stoking speculation the central bank will cut interest rates for the first time since 2001.

The number of loans granted to build or buy homes and apartments decreased 3.7 percent from May, when they dropped a revised 6.9 percent, the statistics bureau said in Sydney today. That's almost twice the median estimate of a 2 percent decline in a Bloomberg News survey of 20 economists.

The nation's property market is mirroring housing slumps in the U.S. and U.K., with prices falling and lending to Australian home buyers plunging by 25 percent since January. Reserve Bank Governor Glenn Stevens, who kept interest rates unchanged for a fifth month yesterday, signaled he may lower borrowing costs as slower economic growth cools inflation.

``The case keeps strengthening for the Reserve Bank to start cutting the cash rate soon,'' said Stephen Roberts, director of research at Lehman Brothers Holdings Inc. in Sydney. ``Persistently weak housing finance adds downside risks to already soft growth in domestic demand.''

Australia's dollar traded at 91.74 U.S. cents at 1:35 p.m. in Sydney from 91.69 cents before the figures were released. The currency earlier dropped to 91.33 cents, the lowest since April 4. The two-year bond yield was unchanged at 5.96 percent.

House prices declined for the first time in almost three years in the second quarter, the government said on Aug. 4, after banks raised mortgage rates and rationed lending because they faced higher funding costs amid the global credit squeeze.

Global Property

U.K. house prices dropped the most in almost two decades in July and U.S. prices fell in 20 metropolitan areas at a faster pace in May, as both economies edged closer to a recession.

A slide in Australian property prices could prompt debt- burdened consumers, already battling rising food and fuel costs, to cut their spending that accounts for about 60 percent of the economy.

Governor Stevens said yesterday it looks likely that ``economic growth will be fairly slow over the period ahead.'' He left his benchmark rate at a 12-year high of 7.25 percent.

``With demand slowing, the board's view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing,'' Stevens said.

Investors have boosted bets the central bank will lower borrowing costs as soon as next month, according to a Credit Suisse Group index based on trading in interest-rate swaps. The index signals a 100 percent chance of a quarter-point cut when policy makers meet on Sept. 3.

Rate Cuts

``We've seen the peak in interest rates and the expectation is we'll see them start to come down,'' Paul Lahiff, managing director of Mortgage Choice Ltd., Australia's third-largest mortgage broker, said in an interview in Sydney today. ``Since the beginning of the year we've started to see new loan approvals come off.''

Commonwealth Bank of Australia Chief Executive Officer Ralph Norris, on July 24, said there are ``clear signs'' the economy is slowing as rising gasoline costs and interest rates damp spending. The bank is Australia's largest mortgage lender.

Australia & New Zealand Banking Group Ltd. forecast last week the biggest full-year profit drop since 1992. Chief Executive Officer Mike Smith said more companies and consumers are defaulting on loans as borrowing costs rise.

The economy, in its 17th year of growth, expanded at the slowest quarterly pace in almost two years in the three months through March 31. Consumer confidence slumped to a 16-year low in July and retail sales fell 1 percent in June.

Australia's five largest lenders have raised home-loan rates by an average 105 basis points, or 1.05 percentage point, in 2008. The increases have added A$250 ($229) to monthly payments on an average A$250,000 home loan, according to the Real Estate Institute.

Households spent 38 percent of their incomes on mortgage payments in the March quarter, the most in the 22 years that the institute has measured affordability.

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