Australia's home-loan approvals fell twice as much as economists forecast in July as expectations of higher interest rates discouraged property investment.
The number of loans granted to people to build or buy houses or apartments fell 4.1 percent to 63,599 from June, the Bureau of Statistics said in Sydney yesterday. The median estimate of 20 economists in a Bloomberg News survey was for a 2 percent decline.
Higher mortgage repayments, coupled with rising labor and material costs, pushed housing affordability to a record low in the second quarter, restraining demand for homes and stifling building work. The Reserve Bank of Australia raised its benchmark interest rate to a 11-year high 6.5 percent last month, suggesting the housing market may slow further as consumers hold back home purchases.
"Affordability is much more of a problem for first-time buyers," said John Edwards, chief economist at HSBC Bank Australia Ltd in Sydney. "This is a sector that remains under pressure from home construction, which has declined."
The Australian dollar bought US$0.821 at 4:35pm in Sydney from US$0.8186 immediately before the report. The yield on the benchmark 10-year government bond fell 14 basis points to 5.8 percent.
Total lending fell 7.4 percent to A$22.5 billion (US$18.4 billion) in July, the report showed. The number of loans approved gained a revised 0.8 percent in June.
The value of lending to owner-occupiers declined 7.7 percent to A$15.1 billion in July. The value of lending to investors who plan to rent or resell homes fell 6.8 percent to A$7.45 billion.
The central bank's Aug. 8 rate move added to the three increases in March, August and November last year. Higher borrowing costs increased mortgage repayments for home buyers and made it less affordable for them to own homes.
The median first-home price climbed 5 percent to A$423,900 in the three months ended June 30, the Housing Industry Association said last month. The monthly repayment on a typical first-home mortgage also increased 5 percent to A$2,506.
Consumer confidence slumped by the most in nine months last month, showed a Westpac Banking Corp survey taken in the four days following last month's rate increase.
Australia's construction industry contracted for a second month last month as building of houses and apartments slid. Input costs were the highest this year.
"The down cycle in the residential sector is lasting far longer than is normally the case because the housing affordability hurdle is simply too high for many to overcome," said Simon Tennent, an executive director at the Housing Industry Association in Canberra. "This situation is creating greater pressure on already very tight rental markets around Australia."
Still, lending may increase in coming months as investors borrow to buy homes before the central bank raises interest rates further. Home-building approvals unexpectedly climbed 0.4 percent in July amid rising employment, wages and immigration.
Rents have climbed after a construction slowdown last year cut the supply of housing just as rising immigration stoked demand. Rents for a two-bedroom apartment have risen by an average 10 percent as vacancy rates dropped to decade lows, falling below 2 percent in Australia's six largest cities, the Real Estate Institute said.
The number of loans to buy newly built dwellings fell 1.3 percent in July from June, the report showed. Loans to build houses dropped 3.3 percent.
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