Housing lending grew by just 9.9% over the past twelve months, representing the weakest growth in 21 years.
Owner-occupier housing credit was up 0.6% in June, bringing the annual growth rate to 10.6% - an 8.5 year low - with investor housing up 0.5%, representing an annual growth rate of 8.3% - the weakest growth since records were first maintained over 17 years ago.
"Not only is retail spending slumping, but home building is going backwards and Australians have given up borrowing - at least for the time being," said Savanth Sebastian, equities economist, CommSec.
"The stimulus provided by tax cuts will certainly act to support the domestic economy over the next couple of months."
More homes are "urgently needed", he added, and for that to happen, more investors are required.
"Incentives for first homebuyers will only make the housing crisis worst. What's needed is a removal of barriers to housing investment such as providing stamp duty relief," Sebastian said.
"State and federal governments can no longer drag their heels on the housing crisis."
In the current economic climate, the chance of another interest rate hike is unlikely, however Sebastian believes that no rate cuts will be entertained, unless the economy deteriorates substantially over the next 2-3 months.
"The Reserve Bank will be mindful that tax cuts and lower petrol prices are likely to boost consumer spirits, while at the same time the job market remains tight," he said.
"An extended period of stable interest rates should entice more people back into the housing market, but it's likely to take some extra incentives from the government for momentum to really develop. The demographic fundamentals point to increased construction, but probably not until late this year or early 2009."
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