Home Buyers Hit By Higher Rates

CANBERRA: Increased interest rates drove home buyers out of the market in July, with finance for housing falling by nearly 16 per cent, according to figures issued yesterday.

Deliberate moves by the Government in the middle of the year to push up interest rates and drive down demand for housing appear to have flowed through in financial figures for July.

According to the Australian Bureau of Statistics, loans for housing fell by 15.9 per cent compared with the previous month.

People getting loans for their first home fell by 9,350 to 31,635 for the month.

While the figures are well down on June levels, July's results are a vast improvement on last year's slump, with housing loans up by 67.9 per cent.

Reports have indicated recently that the Government may be considering increasing interest rates after the Victorian election.

This follows leaked statistics this week indicating that the number of new housing starts this financial year had been revised up to between 153,000 and 158,000.

If met, this would be the highest level of housing activity recorded in Australia.

This has led to some market commentators forecasting that interest rates may rise later this year.

But the monthly decrease in finance led the Construction and Housing Association (CHA) to warn that further interest rate rises would severely damage the housing industry.

Its economics director, Mr Gavan Forster, said the mid-year rise in interest rates caused a large contraction in new home finance.

"Another rise in interest rates will dent severely housing affordability for many buyers, affecting sales and facing the industry with another boom-bust scenario in 1989."

Mr Forster said the CHA was concerned that the Government may "misread" the housing market and increase mortgage rates when the sales market was contracting.

"While it is difficult to use monthly figures to forecast future trends, the CHA's industry intelligence reveals contractions in housing sales, especially in the interest-sensitive first home buyer market."

The Opposition spokesman on housing, Mr Downer, said the fall had resulted from the Government's over-reliance on monetary policy.

"The last thing home buyers want is a further hike in interest rates."

Mr Downer said recent figures forecasting an increase in housing starts had not included the decline in sales occurring already.