The ANZ report shows that there is a remarkable ease of Housing Finance Commitments in June 2008. The statistics show that the number of owners of occupied housing finance commitments have fell than the previous mark by another 3 percent in June this year which slumps up to 24.8 % over the course of the year. The percentage of total value of housing finance commitments was down in June alone by 0.9 percent and within this remarkable figures the approvals for owner occupied housing finance fell by 1.1 percent and the investor loans eased by 0.3 percent.
On the other hand the housing finance for first homebuyers rose quite marginally to a point of 17.6 percent and contrary to this the proportion of finance at fixed interest rates have fallen sharply by 11 percent. What is the main cause of such drastic fall of Housing finance commitments?
In brief the answer is that difficult environment continues to weigh on housing finance commitments. The scenario of June was that the housing finance commitments further weakened because the households struggled to deal and cope up well with the
increasing interest rates, higher rents, and soaring fuel and food prices globally and nationally as well. Because of these the sentiments towards the housing sector has weakened significantly. There was 142 basis points worth of mortgage rates hikes in the last 12 months till June and the month witnessed the significant deterioration of housing affordability. Eventually the sale and purchase of housing activities have eased through out almost all the capital cities which kept both the buyers and sellers wary and consequently reducing the demand of finance for housing commitments.
This is one of the evident in the number of finance commitments which is for both new and established homes have fallen by 43 percent and 25 percent respectively. ANZ doesn’t subscribe that there is a strong relationship between house prices and approvals. The fall in the approvals are thus promoted by weaker activities which could be interpreted as the market shielding itself from such kind of significant falls in prices and there is less house transactions in the period when price expectations are soft.
What is the solution of this condition of easing housing finance commitments? There would be some respite in the condition of housing market provided that with interest rate expectations turning sharply on the decision of the RBA. The RBA has stated and made it abundantly clear that they are trying and indeed have shifted to an ease bias of present interest rates. The RBA may be on the verge of addressing tight financial conditions while it maintains some restrictive policy when the domestic demand is turning and the upside risks is still threatening.
The view of ANZ is that the interest rates may come down sharply to as much as 50 basis points this year which may be followed by a pause until the mid of 2009 and at this point the RBA would be willing to resume cuts if they are convinced that the inflation risks are fully dissipated from such cuts.