Feb drop in home lending could sound alarm bells for boom market

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Another drop in home lending next month could sound alarm bells for the residential property market, analysts say.

Finance commitments for owner-occupied housing fell almost eight per cent in January and others say some of the heat has already been taken out of the booming residential property market.

Economists had expected the number of owner-occupier housing finance commitments to have risen by two per cent in January.

ICAP economist Adam Carr said he was not “too freaked out” about the result January result, just yet.

“But if February shows a fall of a decent magnitude then I think there’s a problem,” Mr Carr told AAP.

“I think we’ll need to just stop and take a really good look at what’s going on there because clearly the strength we’re seeing in the housing market is not going to be maintained if lending figures continually drop.”

While owner-occupier home loans suffered the biggest decline, total housing finance by value fell by 3.3 per cent in January, seasonally adjusted, to $21.159 billion, the Australian Bureau of Statistics (ABS) said earlier this month.

Many economists attributed the fall in demand to first home buyers dropping out of the market following the winding back of the expanded first home owners grant from January.

Mr Carr said it was not a first home buyer issue.

“I don’t think too many people actually picked up on the fact that it wasn’t actually first home buyers, it was non-first home buyers.

“I’m inclined to believe there is some problem with the data, like loans weren’t being processed or something like that.”

Part of the explanation for a decrease in the average loan size for first home buyers could be that some established home owners helped their children with a deposit for a first home.

The average loan size for first home buyers fell from $290,100 in December 2009 to $284,700 in January, according to the ABS.

Established owners who funded the purchases would be excluded from the data.

While the number of first home buyers declined, they only accounted for about 20 per cent of the market, Mr Carr said.

“If you’re talking about parents funding their kids, that would be an even smaller proportion, so the impact would be negligible on the headline figure.”

Housing Industry Association (HIA) chief economist Harley Dale said some established buyers could have funded first home purchases, but it was impossible to tell without viewing bank records.

“I suspect it’s only one factor,” he said.

Mr Dale says he is optimistic that housing finance commitments will move into positive territory in February.

The January falls caught the major banks off guard.

CommSec economist Savanth Sebastian said the 10 percentage point difference between the market forecast and the January result was due to a weakness in construction loans.

“If we do see another month of weakness, it’s nothing to be too surprised about,” he said.

There was no doubt the expiry of the expanded first home buyers grant had taken some heat out of the property market, while four recent interest rate hikes had slowed demand, he said.

“The likelihood of further rate hikes is also probably dampening the sector to a degree and overall we’d expect the housing sector to cool over the next few months.”

AAP

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