Rate cut calls grow as home loans fall at their fastest rate since GFC

 smh.com.au  2/12/2019 4:49:00 AM 

First home buyers have been a key part of the market over the past year as they have taken advantage of falling prices but even they are now resisting the chance to enter the market. The number of loans to first time buyers fell 8 per cent in the month to be 12 per cent lower over the past year.

NSW and Victoria are leading down the national market with sharp falls in total loan numbers through 2018.

It's not just housing. Business loans dropped by 9.7 per cent in December to be 6.2 per cent lower over the year.

The closely watched NAB business survey also pointed to weaknesses across the broader economy.

While there was a lift in January from sharp falls reported in its December survey, NAB found the retail sector across cars, food and household goods at its weakest level since 2014.

Business capacity utilisation fell for the third consecutive month and is now around its long term average in a development that could point to a softer jobs market and a drop-off in capital expenditure plans.

NAB chief economist Alan Oster said the survey on top of weak inflation and growing headwinds for households meant there were substantial risks for the economy and the Reserve Bank's interest rate settings.

National Australia Bank chief economist Alan Oster says there is a chance the RBA may have to cut rates in the second half of this year

National Australia Bank chief economist Alan Oster says there is a chance the RBA may have to cut rates in the second half of this yearCredit:Photo: Bohdan Warchomij

The bank had expected the RBA to start lifting interest rates from their current 1.5 per cent setting some time next year. NAB now believes there is little chance of a rate rise in the forseeable future with a bigger risk of the Reserve slicing borrowing costs in the second half of this year.

"With inflation remaining weak and growth weaker than the RBA expected, the risk is that the bank will act to bolster the economy should the labour market show any signs of deterioration or consumer spending weaken further," Mr Oster said.

UBS economist George Tharenou went further, saying there was now a real risk of national house prices falling 14 per cent from their recent peak. UBS had previously forecast a 10 per cent drop in prices.

Mr Tharenou said economic growth was likely to slow to 2.3 per cent this year and unemployment increase to 5.25 per cent in a development that would force the RBA into cutting rates by November.

Financial markets have fully priced in a rate cut by March next year.

A slowdown in growth and a lift in unemployment would hit the budget which the government is promising will show the first surplus in a decade when it is handed down on April 2. It would also feed into longer term forecasts that both sides of politics will rely upon for their own promises.

The December national accounts, due in the first week of March, are now tipped to show the economy growing by 0.3-0.4 per cent. That would suggest annual growth slipping sharply just weeks out from the budget.

Prime Minister Scott Morrison told members of the Liberal and National parties at their first joint meeting of the year that the government would make the economy stronger.

"That’s what we’re about. A stronger economy, stronger borders, stronger services. That’s a stronger Australia and that’s what we’re doing. Our opponents have plans that will make Australia weaker," he said.

The Housing Industry Association principal economist, Tim Reardon, said tighter lending requirements were hitting both investors and owner-occupiers.

"This downturn is long been forecast but there are ongoing risks regarding its length and depth," he said.

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