Reserve Bank of Australia's Interest Rate Cuts Yield Desired Effects

Strategic Insights -

The Reserve Bank of Australia's (RBA) aggressive interest rate cuts are having a positive impact on the housing sector, with a second consecutive monthly rise in home loan commitments in November. The Australian Bureau of Statistics reported a seasonally adjusted increase of 1.3% in owner-occupied housing finance commitments to 49,192 in November, slightly better than the median market forecast of a 1% rise. This upward trend is attributed to the RBA's rate cuts and the increase to the first home owner's scheme, which have undoubtedly worked to restore confidence in the housing sector.

Key Takeaways:

  • The proportion of first-home buyers in the market rose to 23.6% in November, up from 19.5% the previous month, indicating a significant increase in new entrants to the housing market.
  • The number of commitments for the purchase of a new dwelling rose by 9.8% seasonally adjusted, while loans for the purchase of established dwellings were 1.1% higher, signaling a modest recovery in the housing industry.
  • However, lending for investment purposes remains extremely weak, with a 6.1% fall in the value of investor loans in November.
  • Australian building approvals fell 12.8% to 9,581 units in November, seasonally adjusted, from an upwardly revised 10,983 units in October, and declined by 34.7% in the year to November.
  • The withdrawal of investors from the housing market will weigh on dwelling investment and thus economic growth over 2009, according to ANZ Banking Group economist Alex Joiner.
  • The prospect of a climbing unemployment rate throughout 2009 poses a real risk to any significant recovery in the sector.

Statistics:

  • Home loan commitments for owner-occupied housing rose 1.3% in November to 49,192, seasonally adjusted.
  • The number of commitments for the purchase of a new dwelling rose by 9.8% seasonally adjusted.
  • Loans for the purchase of established dwellings were 1.1% higher in November.
  • Investor finance for the construction of new housing fell 7.4 in November.
  • Australian building approvals fell 12.8% to 9,581 units in November, seasonally adjusted.
  • Building approvals declined by 34.7% in the year to November.
  • The value of investor loans fell 6.1% in November.
  • The Australian dollar rose from $US0.6684 before the data was released to $US0.6690 by 1200 AEDT.

Sources:

  • Asia Pulse (14 Jan)
  • Australian Bureau of Statistics
  • Commonwealth Bank of Australia
  • ANZ Banking Group
  • Australian Associated Press (AAP)