More rate cuts needed following lacklustre mortgage lending figures: HIA
Both Westpac and the Housing Industry Association believe further rate cuts are needed to stimulate new home lending following another “lacklustre” result in September.
Housing finance to owner-occupiers increased by 2.2% September, but only 1% of this growth came from new mortgage lending with rest the result of borrowers refinancing their mortgages to take advantage of cheaper rates.
The September result was slightly above market expectations (1.5%) but not as strong as that anticipated by Westpac, which had forecast mortgage growth of 3% over September.
For the year to date, new lending is down by 3.8%.
Westpac senior economist Andrew Hanlan says the RBA's November rate cut will provide some relief to the sector, with the bank sticking with its forecast of further 0.75% cut in rates still to come over the next 12 months.
“New lending is only a little above that prevailing over the second half of the 1990s,” he says.
Hanlan says the mix of finance was disappointing” from a new supply, construction perspective”.
“Finance to owner-occupiers for the construction of new dwellings edged lower in the month, down 0.2%, to be 5.7% lower for the year to date,” he says.
HIA acting chief economist Andrew Harvey remains hopeful the fall in the number of loans for the construction or purchase of new homes is “merely a blip in an overall trajectory of a return to growth in new home lending”.
“At least today’s fall in new home lending is not of an overly large magnitude, and once we see the positive impact of the Melbourne Cup day rate cut flow though we should see lending begin to gain ground.
“Moreover, if the RBA fires up with a second rate cut in December, or at latest early 2012, which is warranted given domestic and global economic conditions, then the prospect of a return to decent levels of new home building is good,” he adds.
“The sector faces a number of headwinds: interest rates, stretched affordability and household's desire to pay down debt. These factors are offsetting the positives of rising household incomes, relatively low unemployment and a shortage of housing stock.”
By state, owner-occupier finance for the year to date reveals some divergences.
There were signs of strength in WA, with mortgage lending to owner-occupiers up 9.1% over the nine months to September.
However, NSW (1%) and South Australia (2.2%) are broadly flat for the year while mortgage lending has weakened in Queensland (down 9.5% for the year), Victoria (down 4%) and Tasmania (down 5%).
Finance to investors was up 1.9% in the month, rebounding 8% since April, but still down 4.2% for the year to date.
“While rents are strengthening, established house prices have tended to trend modestly lower since mid-2010,” says Hanlan.
Macquarie Investment Management agrees that more rate cuts are needed.