By Jacob Greber
Feb. 11 (Bloomberg) -- Australian home-loan approvals rose in December by the most in almost nine years as government handouts and the biggest round of interest-rate cuts in almost two decades spurred first-home buyers.
The number of loans granted to build or buy homes and apartments increased 6.4 percent to 52,974 from November, the biggest gain since May 2000, the statistics bureau said in Sydney today. The gain was almost double the 3.5 percent median estimate of 16 economists surveyed by Bloomberg News.
Approvals rose for a third month as Central bank Governor Glenn Stevens cut the benchmark interest rate to a 45-year low of 3.25 percent to prevent the housing market from collapsing. The construction industry is shrinking, unemployment is rising, business confidence is at a record low, and lenders including Commonwealth Bank of Australia have announced higher provisions for bad debts, adding to signs the nation faces a recession.
“These are the first steps in the right direction,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. “We need to see these sorts of results for another six months to be confident the construction sector will begin to pick up.”
“Policy makers don’t have the option of failing here,” Redican added. “If they don’t get construction off the ground, the economy will be in for a very sharp slump.”
First-Time Buyers
To spur house building, the government in October tripled a grant to first-time buyers of new homes to A$21,000 ($14,000) and doubled the grant for buyers of existing homes to A$14,000. The increased payments are due to remain available until June 30.
First-home buyers accounted for 25.4 percent of loan approvals in December, up from 18.9 percent a year earlier, today’s report showed.
The Australian dollar traded at 65.44 U.S. cents at 12:27 p.m. in Sydney from 65.79 cents before the report was released. The two-year government bond yield rose 1 basis point, or 0.01 percentage point, to 2.71 percent.
Today’s report reflects similar gains in demand for housing in some property markets around the world where prices have fallen.
An index of U.S. pending home sales climbed 6.3 percent in December, the first increase since August, U.K. banks granted 31,000 loans for house purchase, compared with 27,000 in November, and the value of Hong Kong mortgages jumped 22.8 percent, reports showed in the past two weeks.
Variable Mortgages
Governor Stevens said yesterday commercial lenders have passed on about 375 basis points of the central bank’s 400 basis points of reductions since the start of September.
The interest-rate reductions have saved borrowers with an average A$250,000 home loan about A$600 a month. Around 90 percent of property buyers in Australia have variable-rate mortgages.
“The cash flow channel for indebted households is working quite powerfully in our case,” Stevens told a conference in Kuala Lumpur yesterday.
“The question of how people’s appetite to borrow will be expanded by these things of course is another” matter, he said.
Lending by banks to consumers buying houses rose 7.6 percent last year, the weakest growth since 1983, home-building approvals fell in December for a sixth month and property prices tumbled 3.3 percent in 2008, recent reports showed.
Interest Rates
Investors have a 100 percent expectation the Reserve Bank of Australia will cut the overnight cash rate target by 50 basis points on March 3, according to a Credit Suisse Group index based on swaps trading.
The nation’s jobless rate probably rose last month to 4.7 percent, the highest level in more than two years, from 4.5 percent in January, after companies including Macquarie Group Ltd. fired workers, according to the median estimate of 14 economists surveyed by Bloomberg. Jobs figures will be released tomorrow.
There also signs households may be less willing to take on extra debt after the economy expanded just 0.1 percent in the third quarter from the previous three months, the weakest growth since 2000.
An index of consumer confidence declined 4.6 percent in February, according to a Westpac Banking Corp. survey of 1,200 people conducted between Feb. 2 and Feb. 8, and released in Sydney today.
Australia’s construction industry shrank in January for an 11th month.
Bad Debt
Boral Ltd., Australia’s biggest seller of building materials, said today it expects housing starts to tumble 15 percent this year to 135,000.
Commonwealth Bank, the nation’s second-biggest bank, said today bad debts rose almost five-fold in the first half to A$1.6 billion as loans to failed companies including ABC Learning Centres Ltd. soured.
The total value of lending rose 5.9 percent to A$18.6 billion in December, today’s report showed.
Lending to owner-occupiers gained 7.1 percent, while the value of lending to investors who plan to rent or resell homes advanced 2.9 percent.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
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