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Housing finance lifted in November
Published 11:36 AM, 12 Jan 2011 Last update 12:46 PM, 12 Jan 2011
QUICK SUMMARY | FULL STORY | ECONOMY

AAP

Unexpected growth in the number of new home loans in November will have little effect on interest rates until the full toll of the Queensland floods is known, economists say.

The number of new home loans for owner-occupiers rose 2.5 per cent in November, to a seasonally adjusted 50,526, official data showed on Wednesday.

Economists' forecasts had centred on a 1.0 per cent fall in housing finance commitments for the month.

The Australian Bureau of Statistics said total housing finance by value rose nationwide by 1.2 per cent in November, seasonally adjusted, to $21.065 billion.

"(That is) quite a good outcome given the headwinds that people saw for November," said Commonwealth Bank economist James McIntyre.

"We saw some positives in the data for one of the most interest rate-sensitive elements of the economy: housing construction and dwelling investment."

Housing construction rose 2.7 per cent in the month, and the purchase of new dwellings rose by 9.7 per cent.

But the surge in new home loans is unlikely to faze the Reserve Bank of Australia (RBA), which would be reluctant to raise the cash rate above its current 4.75 per cent in the wake of extreme flooding in Queensland, Mr McIntyre said.

"Our view before the floods is that the RBA would be on hold until April.

"It's too early to say at this point what the economic impact will be."

Commonwealth Bank was holding to its April rate rise prediction, although there is a chance the RBA's decision to raise the cash rate by 25 basis points in November could impact on the December Housing Finance figures.

"We may be seeing some of that November rate impact," Mr McIntyre said.

"It could be December, or maybe January, but we could be seeing some insulation from our strong labour market, which could buffer interest rate rises."

Citigroup global markets director Paul Brennan said the better than expected housing finance figures showed the correction in housing was beginning to level out.

"But building approvals are still down," Mr Brennan said. "Trend is down about 15 per cent from the peak early in 2010, so it just tells us that housing is going to detract from GDP growth over the next two quarters.

"Obviously, there is going to be a big boost to housing construction with all of the floods in Queensland, but that's a story for later in the year."

The Reserve Bank of Australia (RBA) had already factored the detraction in growth into its forecasts, Mr Brennan said, adding that the central bank will keep the cash rate on hold in February.

Meanwhile, the futures market has priced in an August rate rise.

The Australian dollar was largely unmoved after the release of the housing finance figures.



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