Monday, July 7, 2008

Australia's Home-Loan Approvals Probably Fell for Fourth Month

By Victoria Batchelor

July 8 (Bloomberg) -- Australia's home-loan approvals probably declined for a fourth straight month in May, adding to signs that interest-rate increases are slowing the economy.

The number of loans granted to people to build or buy homes or apartments fell 2 percent from May, when they dropped 3 percent, according to the median estimate of 21 economists surveyed by Bloomberg News. The statistics bureau will release the report tomorrow at 11:30 a.m. in Sydney.

Consumers, grappling with record fuel prices and borrowing costs at the highest in 12 years, are taking out fewer loans and paring their spending. Declining lending, coupled with figures this week that showed job advertisements dropped and building work fell last month, may reinforce speculation the central bank doesn't need to add to this year's two interest-rate increases.

``There is building evidence of a loss of momentum in the domestic economy,'' said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. ``The marked slowdown in lending reaffirms our view the Reserve Bank will leave interest rates steady for the remainder of 2008.''

The central bank kept the overnight cash rate target unchanged at 7.25 percent this month. Governor Glenn Stevens and his board previously raised the benchmark by a quarter point in both March and February, and also twice in 2007.

``There has been substantial tightening in financial conditions since the middle of last year,'' Stevens said on July 1. Consumer and corporate borrowing ``has weakened significantly.''

Latest Increase

Australia's five largest banks have added an average of about 90 basis points to home-lending rates in 2008, almost double the central bank's moves, to recoup a surge in their funding costs because of the global squeeze on credit.

St. George Bank Ltd. announced a further 0.2 percentage point increase in its variable home-loan rate, to 9.67 percent, effective from today. That will add A$10 ($9.60) to weekly repayments on an average A$250,000 mortgage, according to the nation's fifth-largest lender.

``Banks have been absorbing a significant increase in funding costs due to the impact of the U.S. subprime lending crisis on global liquidity and the wholesale funding markets,'' said Michael Cameron, St. George's chief financial officer.

Higher borrowing costs are slowing Australia's $1 trillion economy, which will help to ease an inflation rate that is running at the fastest pace in almost two decades.

Job vacancies advertised on the Internet and in newspapers fell by the most in 19 months and construction activity contracted for a fourth month in June, according to industry surveys released yesterday.

Bloomberg Survey

Following is a table of economists' forecasts for the change in loan approvals in May from the previous month:

Home Loan
Approvals (%)
Median -2.0%
High 0.0%
Low Forecast -5.0%
No of replies 21

4cast -1.0%
ANZ Bank -3.6%
AMP Capital -4.0%
Ausbil Dexia -5.0%
BT Financial -1.0%
Citi -2.0%
Commonwealth Bank -5.0%
Goldman Sachs -3.0%
ICAP Australia -2.0%
JP Morgan Chase -2.5%
Lehman Brothers -1.0%
Macquarie -3.5%
Merrill Lynch -1.5%
National Australia 0.0%
Nomura -2.0%
St George -3.5%
Suncorp Banking 0.0%
TD Securities -2.0%
Thomson Reuters -1.0%
UBS Australia -3.0%
Westpac Bank -4.0%

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