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Figures suggest that borrowers are shying away from fixed-rate home loans, a sign of growing belief that the economy is slowing enough to ward off interest rate rises.
Traders in financial markets are, however, betting on quite the opposite. Yesterday, they lifted their bets that the Reserve Bank of Australia will raise rates more than once by the end of the year. Michael Marquette of Marquette Turner continues to believe that we are likely to see at least two more rises by the end of the year.
By March, almost one in four borrowers chose to lock in their home loan rate to avoid being caught out by more increases. The demand for fixing loans waned, however, in April, and fixed-rate loans dropped back to 17.5 per cent of the total market.
This could perhaps suggest that borrowers are becoming more pessimistic about the state of the economy and therefore confident that inflation and rates could fall.
The unsteadiness of the market comes amid more evidence of a dramatic fall in confidence among prospective home buyers. Housing finance figures released by the Australian Bureau of Statistics showed the value of new housing loans dropped 3 per cent in April – the third month in a row of solid falls.
Compared to the previous year, building approvals fell 1.6% in February, despite an 8.7% rise in the number of private dwellings approved. The big driver was a very sharp 19.4% slump in private sector other dwellings, flats, units and townhouses.
The Australian Bureau of Statistics (ABS) said the seasonally adjusted estimate for private sector houses approved rose 0.8% in February following a rise of 2.4% in January; and the seasonally adjusted estimate for private sector other dwellings approved fell 0.9%.
In numerical terms, approvals to build private houses rose 0.8% to 9,138 in February and approvals for apartments and renovations declined 0.9% to 3,611.
The Housing Industry Association said approvals were heading in the wrong direction:
“Total building approvals were flat in February (up by all of 0.1 per cent) to be at a level 1.6 per cent lower than a year earlier. Multi-unit approvals fell by 1.3 per cent to 3,814, their lowest level since May last year. Approvals for detached houses inched up by 0.8 per cent to a level of 9,332,” HIA Chief Economist, Harley Dale said.
“Building approvals were down over the three months to February 2008 for multi-units in particular, but also for detached houses” Mr Dale said building approvals updates were suggesting the gap between housing supply and demand was set to widen before stabilising:
“Detached house approvals have been trending (moderately) down again for three months now, while for the multi-unit segment there is a downward trend apparent over the last four months,” Mr Dale said.
“All leading indicators of new housing, including building approvals, are pointing to flat to weaker residential construction levels in the short term.” “Looking at the three months to February this year, building approvals have weakened in every state and territory in Australia except for Tasmania and the Northern Territory,” Mr Dale said in a statement.
The recent interest rate rises have prompted property owners to shop around for the best mortgage deal, with the number of borrowers refinancing growing by 6% between December 2007 and January this year, according to the latest data from the Australian Bureau of Statistics.
Over the past three months, refinancing has risen almost 22% to an eight-year high.
A record number of borrowers refinanced loans in January to free up spending power, and no doubt the rate hikes in February and March prompted even more borrowers to make a beeline for the banks to negotiate the best possible deals.
The recent sharp declines on the share market are also causing more investors to shift their attention to property, and there are compelling fundamentals to suggest that property will be more in vogue with investors throughout 2008, despite rising interest rates.
Reported b y Commsec, the value of new housing finance commitments rose by 3.7% to $23.2bn in January – the biggest gain in seven months – while investment loans rose by 8.3%, and owner-occupied loans rose 1.7%.
The number of new owner-occupier housing loans rose by 2.3% in January, but was largely influenced by more people refinancing loans.
The proportion of first homebuyers declined to 18% from 18.4% while the average loan fell by $4,500 to $233,900.
Bank dominance of the mortgage market is at a level not seen in over 12 years, with Westpac recently having purchased the RAMS portfolio. This will no doubt be the first of many as non-bank financial institutions increasingly struggle to maintain their share of the mortgage pie.