Australia's Home-Loan Approvals Drop as Economy Slows

By Jacob Greber

Sept. 9 (Bloomberg) -- Australian home-loan approvals declined for a sixth month, supporting the central bank's assessment the economy is slowing.

The number of loans granted to build or buy homes and apartments fell 0.2 percent from June, when they slid a revised 3.7 percent, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg News was for no change. The July drop was the smallest in seven months.

Demand for new homes may rebound in coming months after Reserve Bank of Australia Governor Glenn Stevens cut the overnight cash rate target from a 12-year high by a quarter point to 7 percent on Sept. 2. Stevens said yesterday ``the question will be do we hold here or go down a bit more.''

``Any improvement that emerges from here in demand for home loans probably will stem from expectations the Reserve Bank will cut the cash rate further,'' said Helen Kevans, an economist a JPMorgan Chase & Co. in Sydney.

The Australian dollar traded at 80.88 U.S. cents at 12:29 p.m. in Sydney from 80.89 cents before the report was released. The two-year government bond yield rose 2 basis points, or 0.02 percentage point, to 5.58 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.

`Restrictive'

Interest rates are ``still well on the restrictive side,'' Stevens said at his half-yearly testimony before parliament in Melbourne yesterday.

Investors see an 82 percent chance Stevens will lower the benchmark rate again on Oct. 7, according to a Credit Suisse Group index based on trading in interest-rate swaps at noon in Sydney.

``We are probably at the top of the interest-cycle at this point,'' Commonwealth Bank of Australia Chief Executive Officer Ralph Norris said on Sept. 3. ``There is no doubt the economy is slowing.''

The economy, in its 17th year of growth, expanded at the slowest quarterly pace in more than three years in the three months through June 30 as consumers cut spending for the first time since 1993.

Business Confidence

Australian business confidence held at the lowest level in seven years last month, according to a report published today by National Australia Bank Ltd. The bank's sentiment index rose 2 points in August to minus 7.

Households spent almost 40 percent of their incomes on mortgage payments in the June quarter, the most in the 22 years that the Real Estate Institute has measured affordability.

The total value of lending rose 0.6 percent to A$18.2 billion ($14.7 billion) in July, today's report showed. Lending to owner occupiers declined 0.1 percent, while the value of lending to investors who plan to rent or resell homes gained 2.3 percent.

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