Home Loans Burden Increasing

The steep rise in home loan interest rates over the past 12 months has taken a harsh toll on disposable income, according to investment bank Dominquez Barry Samuel Montagu.

Writing in its latest Market Comment, economist Peter Martin notes that home loan repayments now swallow more than 38 per cent of average gross income compared with just under 33 per cent a year ago.

Using the current mortgage rate of 15.5 per cent, annual loan repayments are running at $9,492, based on a loan equivalent to 75 per cent of the weighted average of Australian home prices.

In the the September quarter last year, the figure was $7,560, using a mortgage rate of 13 per cent.

"With real earnings set to ease further, only modest growth in lending demand for home building can be expected," Mr Martin says.

As a result, the expected marginal improvement in home approvals for September is unlikely to be the start of a housing rival.

Commenting on other sectors of the economy, he says the unemployment rate may grow only slowly due to a probable decline in workforce participation.

Mr Martin says forthcoming figures for the retail sector almost certainly will confirm that retail sales are continuing to grow at under the inflation rate.

He warns that inflation remains a problem, with the prices of manufactured inputs and outputs having risen noticeably due to the impact of the second round of Australian dollar depreciation earlier this year.

This ultimately will be reflected in the December and March quarter consumer price index figures, he says.

Despite these relatively gloomy figures, Mr Martin says that the Australian economy is now in a period of stagnation rather than deep recession.