***property still running hot*************

Source: CANBERRA AAP
Date: 2005-Apr-11 05:30 PM

Australians are renewing their love affair with property, with new data showing resurgent demand for home loans raising fears of another interest rates hike.

February figures from the Australian Bureau of Statistics (ABS) painted a picture of a robust housing market, despite the March interest rate rise.

However, the strong demand did not extend to first home buyers who were continuing to struggle to find a way into the housing market.

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The latest data follows some flattening in the market in January and will revive concerns over the strength of the housing sector when the Reserve Bank meets on interest rates next month.

Last week the RBA held off on increasing the official cash rate from its current level of 5.5 per cent after raising it 0.25 of a percentage point in March.

Economists believe the pick-up in lending could tip the balance in favour of another rate rise when the RBA board meets in May.

ABN Amro chief economist Kieran Davies said the RBA was likely to be concerned by the housing figures.

"I don't think they would be that comfortable with lending picking up," Mr Davies said.

UBS Australasia chief economist Scott Haslem said a further lift in rates over coming months remained a close call.

"(However) recent employment and lending data leave us modestly in favour of a May hike," he said.

The ABS figures showed a strong spike in demand for owner-occupier loans, which was up 3.7 per cent, higher than market expectations of around 2.5 per cent.

It was the seventh rise in eight months.

The total value of home loans - excluding alterations and additions - rose five per cent to $17.91 billion, boosted by increases in the value of both owner-occupier and investment loans.

But Master Builders Australia warned the rise in home lending could be cut short as the March rate rise started to bite.

"First home buyers will be the most affected by the rate rise because of worsening affordability," MBA chief economist Peter Jones said.

By Sandra O'Malley