Early rate rise spurs building activity

Australians rushed to finance new homes in October as the Reserve Bank started to move interest rates upwards.

The Bureau of Statistics reports that the number of loans taken out to build new homes  rose by 9.2 per cent during the month,

However that was offset by a 3.9 per cent fall in the number of loans approved to finance newly built “spec” homes.

But Ben Phillips, a senior economist with the Housing Industry Association, is warning that continued weakness in lending for rental investment could, ultimately, force up rents.

He says the bureau’s figures also signal “another year of skinny rental vacancies.”

Other data also suggests that the current round of rate rises hasn’t yet had a big impact on consumer confidence.

The Westpac bank reported that there had been a “surprisingly modest” fall in its consumer confidence index during December.

It made the observation as the Prime Minister, Kevin Rudd, pressed the government’s attack on banks – including Westpac – which have raised their home loan interest rates by more than the Reserve Bank’s targets.

“Jacking up interest rates, in excess of what the Reserve Bank has determined, is not in my view acting responsibly in terms of your customers,” Mr Rudd said.

Westpac’s index of consumer confidence fell by just 3.8 per cent this month, even though the Reserve Bank had increased its target interest rate three times – by a total of 75 basis points – by then.

The bank’s chief economist Bill Evans said a much bigger fall had been a “real possibility.”

The index fell by no less than 15.5 per cent, after a single rate rise of just 25 basis points, back in March 20065.

Mr Evans said each subsequent rise, over the course of 2006 and 2007, had also produced a double digit fall in consumer sentiment.

He said Australia must now be getting close to a situation in which similarly large falls in consumer confidences would be seen again.

And the National Australia Bank is now warning that global growth, in the fourth quarter of this year, might be weaker than  had been expected.