Friday, July 27, 2012

Lacklustre demand for Aussie mortgages despite rate cuts

Despite a 125 basis point cut in the interest rate since November, the Reserve Bank of Australia (RBA) has failed to stimulate demand for home loans amid growing concerns of a prolonged decline in the country’s property market.

The annual growth of outstanding mortgages dropped to its slowest pace since 1977 as Australians boost savings and repay loans instead of borrowing. From their mid-2010 peak, home prices declined 6.1 percent and slumped for a fifth straight quarter.

This is in contrast to the last two periods of declining interest rates.

After the credit freeze in 2008, demand for housing loans increased within two months of the first interest rate cut and supported the 21 percent rise in home prices during 2010. Likewise, rate cuts in 2001 also brought a surge in lending.

“Prices have started to come down, and we haven’t yet seen the normal reaction to lower interest rates,” said Shane Oliver, Head of Investment Strategy at AMP Capital Investors.

“Attitudes towards housing have changed, so in the past, there was sort of a solid confidence that house prices only rise, and therefore as soon as interest rates come down you’d see a pretty quick response, whereas this time around the response has been a lot slower.”

View the original article here

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