SCOREBOARD: Housing development

Today's home loans data shows the rebound continues and may signal better times as rate cuts flow through.

Australian home loans rose by 1.4 per cent in November, which was in-line with the market expectations. This follows a 0.8 per cent increase in October and gives an annual increase of about 4.6 per cent. Excluding refinancing, loans rose 2.5 per cent, after a 2.8 per cent rise the month prior, to be 1.8 per cent higher annually.

The monthly rise was driven by loans for new and established dwellings, which rose by 1.9 per cent and 1.6 per cent, respectively, to be 11.7 per cent lower and 7.1 per cent higher than at the same time last year. Loans for construction were down 0.4 per cent and have fallen in five of the last six months, seemingly backing those weak approval numbers.

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This is a decent set of numbers overall and shows the rebound in lending that we’ve seen since March 2010 continues. This is especially the case in NSW where loans were up 4.2 per cent in the month (10.6 per cent in the last three months) and WA where loans rose 0.9 per cent in the month (3.2 per cent higher over the last three months). Lending has been mixed in other states and is weakening in Victoria (down in four of the last five months) and Queensland (down in two of the last three months).

In absolute terms the number of loans isn’t great, being some 13 per cent below the decade average, but there are clear signs of improvement. For a start, the November rise is the eighth consecutive increase – a cumulative 14 per cent gain. Also, we are seeing first homebuyers come back to the market, with that group accounting for 20 per cent of new loans for the month, which is just above average. Finally, investors look to be returning to the market as well. Loans here (by value) were up about 1.8 per cent in the month and are only 2.9 per cent lower annually (about 6 per cent below the average of the last few years).

I’d note that this recovery has occurred in an environment where rates were about half a per cent higher, and the recent cuts made by the RBA should see this recovery strengthen in the months ahead.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

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