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The number of loans fell 1.5 per cent to the lowest level in three months, the Australian Bureau of Statistics said on Monday. Photo: Rob Homer
First-home buyers are pulling back from the property market, as reductions in state government incentives offset the impact of lower interest rates.
New entrants to the property market accounted for 14.9 per cent of all loans taken out in December – the smallest proportion since 2004 and well below the historic average of 20.1 per cent.
Australian Bureau of Statistics figures also show that the number of loans fell 1.5 per cent to the lowest level in three months, confounding market expectations that approvals would be flat.
Last year state governments made dramatic changes to the extra benefits available to first-home buyers.
The Victorian government cut out its $7000 grant to first-home buyers and the NSW and Queensland governments cut their $7000 grant to buyers of second-hand homes, replacing it in October with a $15,000 grant to those buying new homes.
Waning demand for loans from first-time buyers supports the Reserve Bank of Australia’s view that the nation could be facing a so-called growth “gap” if non-mining sectors of the economy fail to respond to lower interest rates.
RBA policymakers are trying to spur industries such as home building to ensure the economy has enough drivers of growth once the resources investment boom peaks, something it expects to happen some time this year.
Owner-occupied loans fell 2.7 per cent and borrowing for property investment slid 2.4 per cent. The value of loans dropped 2.6 per cent.
However, the report did contain some positive news for builders, with loans for construction of new homes rising 1.2 per cent, snapping a four-month falling streak.
Master Builders chief economist Peter Jones said the RBA’s rate cuts last year were starting to have an effect, even though a broad-based recovery was not in sight.
“With consumers still reluctant to commit to large investments, the Reserve Bank should give urgent consideration to a rate cut at its March board meeting,” Mr Jones said.
TD Securities analyst Alvin Pontoh said he expected the December drop in demand for loans to be temporary after NSW ended a $7000 first-home buyers’ grant in October, and as interest rate cuts gain traction.
“Housing is key for the 2013 outlook, but today’s data was simply too backward-looking to matter,” Mr Pontoh said.
“Furthermore, there is clearly evidence of a moderate housing recovery under way without any corresponding pick-up in credit growth (building approvals and house prices are rising).”
Still, demand from first-time buyers may be low, some analysts say, as younger buyers are squeezed out of the market by rising property prices.
Monday’s ABS report showed the size of first-time buyers’ average loan rose 2.1 per cent in December to $293,900, the sharpest gain in seven months.
The RBA estimated on Friday that capital city house prices had risen by 4 per cent since falling into a trough in mid-2012.
Financial markets are pricing in a 53 per cent probability of an RBA rate cut next month, up from 48 per cent on Friday.
This story first appeared on The Australian Financial Review