Negative growth predicted as housing finance hits a 10-year low

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The latest figures from the ABS reveal that the month to month level of home loan approvals has hit its lowest point for 10 years, leading to predictions that the housing market could see big falls in 2011.

According to ABS figures, the seasonally adjusted estimate for the number of home loan approvals for owner occupied housing in February fell by 5.6%.

When broken down into categories, the number of home loan approvals for new dwellings fell by 12% in seasonally adjusted terms, the figure for established dwellings fell by 0.6% and the figure for the construction of dwellings rose by 1%.

Noting that the demand for housing is now weaker than it was during the second half of 2008, when house prices fell by 5% as an average for the country’s eight capital cities, SQM Research Managing Director Louis Christopher warned that “the market is falling and is likely to fall at least 5% this year as an average for the capital cities”.

“We are most bearish on the Gold Coast and Sunshine Coast markets. Brisbane, Darwin and Perth also appear to be in significant downturn,” he added.

In terms of when the market will bottom out, Christopher believes that – while this is difficult to determine – it will most likely occur soon after an interest rate cut or significant government stimulus.

“There is an outside possibility that the market could bottom without an interest rate cut or government stimulus if there is a large acceleration in inflation. At this point in time, consensus estimates suggest only a modest to moderate rise in inflation,” he said.

“It is important to note that in our opinion it is unlikely this downturn will materialise into a nationwide housing crash for the capital cities; rather a moderate fall in house prices is expected at this stage."

Meanwhile, the Housing Industry Association has called for the RBA to keep interest rates on hold to allow the country’s housing finance figures to bounce back.

“The ongoing deterioration in new home lending supports the Reserve Bank’s decision to hold the official cash rate steady, and it also highlights the need for execution of the widely-held expectation for an extended pause for interest rates,” said HIA economist Matthew King.

“Policy makers cannot afford to exacerbate what is an already weak short-term outlook for new home building by sitting on the sidelines. The forecast 148,100 dwelling completions in 2011 are well short of the underlying demographic demand for housing of nearly 174,000.”

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