Australian Home Loans Fall; GDP to Accelerate

Darlington Musarurwa
10 Mar, 2010
New York City

Australian consumer sentiment index increased 0.2% in March despite the recent four rate increases in a row. However, home loans declined 3.3% in January. Central bank official Philip Lowe said that Australia is likely to grow at or above average rate and investment share of GDP is near its peak.

[R]3:00 AM New York, 7:00 PM Sydney – Australian consumer sentiment index increased 0.2% in March despite the recent four rate increases in a row. However, home loans declined 3.3% in January. Central bank official Philip Lowe said that Australia is likely to grow at or above average rate and investment share of GDP is near its peak.[/R]

Australia’s stock index ended flat as investors locked in gains in commodity stocks after rising for eight consecutive trading sessions.

Investor sentiment was also dampened by a government report showing that housing loans unexpectedly declined in January.

In Sydney trading ASX 200 Index ended at 0% or 0.1 to 4,820.00.

Of the ASX 200 index stocks, 83 gained, 96 fell, and 21 were unchanged. Cudeco led gainers in the index shares with a rise of 13% followed by PanAust Ltd climbing 6%.

Australia’s Home Loans Fall 3.3%

Australian Bureau of Statistics said today the total value of dwelling finance commitments excluding alterations and additions decreased 3.3% to A$ 21.2 billion in January from the previous month.

Owner occupied housing fell 5% to A$14.7 billion and investment housing-fixed loans gained 0.9% to A$6.4 billion.

Number of dwellings owner occupied housing dropped 7.9% to 51,056 units and construction of dwellings fell 3.9% to 6,607 units.

Purchase of new dwellings plunged 13.2% to 2,146 units and purchase of established dwellings plummeted 8.2% to 42,303 units.

Consumer Sentiment Gains 0.2% in March

The Westpac-Melbourne Institute of Consumer Sentiment index gained 0.2% to 117.3 in March from 117 the previous month despite the Reserve Bank of Australia increasing its rates four times.

The labor market continues to have a positive impact on sentiment, but mortgage rates are now nearing levels that might negatively impact on sentiment- estimated to be around 7 percent.

A rise in Australian dollar of 3.8% since the last survey, including a rising share market also supported sentiment.

According to the report, households continue to be risk averse, with the proportion of households who see the “wisest place for savings” as a bank deposit or “paying down debt” advanced from 49.7% in December to 53.8% in March.

The proportion of respondents who favor real estate or shares as the best investment opportunity or savings fell to 25.3% from 29%.

“Family finances compared to a year ago” edged up 1.4%, while respondents to “family finances over the next 12 months” decreased 1.9%.

In addition, “expectations for economic conditions over the next five years” dropped 2.7%. Opinions of whether “now is a good time to buy a major household item” fell 0.5%.

The report notes that the Reserve Bank of Australia is expected to pause its interest rate increases at its next meeting on April 6.

Australia to Grow More Than Expected, Lowe

Reserve Bank of Australia Assistant Governor (Economic) told a meeting of the Urban Development Institute of Australia that the country’s economy will grow more than forecasted.

Lowe said there is a need to improve the supply side of the economy in order to rein in inflationary pressures and house prices.

He further said consumer prices are not expected to remain below target for an extended time.

Lowe criticized the recent proposals by the International Monetary Fund staff that central banks should raise their inflation targets to 4%. He noted that higher inflation targets invariably leads to higher nominal interest rates.

Business investment in the economy is close to 16% of GDP, which is “not far below its peak level” in the last forty years and is expected to rise in the next couple of years, Lowe noted.

Lowe also estimated that households may be more vulnerable to a rise in interest rate this time because debt to income ratios are 20% higher than in 2003 and said that when mortgage rates are near 7% they act as a significant “threshold rate for consumers.”

ASX Movers

Alesco Corporation Ltd led the decliners in the S&P ASX 200 index with a loss of 31.5% followed by losses in Hills Industries Limited of 9.2%, in Nufarm Limited of 8.9%, in Sundance Resources Limited 6.6% and in Gunns Ltd 4.6%.

CuDeco Limited led gainers in the S&P ASX 200 index with a rise of 12.9% followed by gains in PanAust Limited 6.0%, in Biota Holdings Limited of 5.5% and in Atlas Iron Limited of 4.5%.

Other Movers

Alesco Corporation Ltd plunged 30.2% to A$3.18 after the maker of building materials and home products was downgraded the stock to “sell” from “neutral” at UBS AG.

Australand Property Group added 3.0% to A$0.51 after the stock was upgraded to “buy” from “hold” at Deutsche Bank AG.

Aurox Resources Limited surged 164.8% to A$0.71 after the mineral explorer and Atlas Iron Ltd. announced that they had entered into a merger discussion with a definitive plan.

Telstra Corporation Limited increased 2.7% to A$2.99.