Living costs, floods and interest rate hikes blamed for slow property market in Australia

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Living cost and flood slowing property market growth in Oz

A higher cost of living, higher interest rates and floods have conspired to make people in Australia more reluctant to buy and sell their homes, it is claimed.

The numbers of new properties being bought have fallen compared with last year and the number of home loans approved has fallen to a 10 year low.

The Queensland floods and a rise in interest rates are said by experts to be two of the contributing factors but economists also point out that a 2% rise in housing finance commitments is also having an effect.

The latest figures from the Australia Bureau of Statistics (ABS) shows that the number of home loans approved in March fell 1.5% to a seasonally adjusted 44,968, its lowest level since February 2001.

JP Morgan economist Ben Jarman said that the housing sector was weak throughout the March quarter. ‘In January, we had the Queensland floods and that pushed down approvals nearly 15% and the numbers have failed to come back from that. It does seem the Queensland floods are exhibiting a fairly long lasting drag on that market,’ he explained.

Many households also refinanced their home loans at the end of 2010 after the Reserve Bank of Australia (RBA) raised the cash rate by 0.25% to 4.75%. ‘That rate hike in November was super sized by the banks. So you’ve got a couple of elements that are contributing to the weakness, but even if those factors start to fade, there will still be some pretty intense headwinds for the sector,’ he said.

‘You’ve got borrowing rates now above average and the prospect of more rates hikes to come. So we expect the housing data to be pretty subdued for some time to come,’ he added.

According to Dean Rushton though, chief operating officers of LoanMarket, one of Australia’s largest mortgage brokers it is cost of living increases that are the main reason for a drop in the number of new home loans.

A national survey of the company’s mortgage brokers found 42% of customers believed everyday price rises and increases in daily expenses were delaying their home loan applications. This compares with 29 per cent who said it was because of further potential interest rate rises.

‘Many people simply can’t take on home loan credit when they are paying increased petrol and food costs, as well as higher charges for utilities such as electricity. The key driver bringing down approvals appears to be the everyday costs consumers are facing,’ Rushton said.

Meanwhile, figures from the Housing Industry Association show that although the number of new homes sold across Australia increased for the third consecutive month in March there is still a long way to go before they reach healthy levels.

‘The March result for new home sales reflects an ongoing pause in the interest rate hiking cycle and some abatement of the severe weather conditions witnessed in early 2011. A sustained period of improvement is required for new home sales and a raft of other leading indicators, before we can look ahead to healthy levels of residential building activity,’ said HIA chief economist Harley Dale.

However, the increase is exaggerated by a weak starting point in the final quarter of 2010 and volumes remain below the long term average, the HIA report shows and sales volumes for multi-units for the three months to March were down by 5.9% Total new home sales were down by 9% in the March quarter, compared with the same period a year ago.

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