Borrowers Turning To Fixed-rate Home Loan

Home loan customers are turning to fixed-rate loans in increasing numbers but overall demand for housing finance has fallen, official figures released yesterday reveal.

The data showed that the number of housing finance commitments dropped 3.2 per cent in November in seasonally adjusted terms, contrary to expectations in financial markets of a rise of 1.5 per cent.

The biggest decline was in NSW.

However, rising house prices in Sydney and Melbourne pushed up the value of loan approvals by 7.5 per cent.

Because of the volatility of month-to-month figures, economists warned not to read too much into the November fall.

They pointed to trend figures, which showed that the number of dwellings financed increased by 0.6 per cent.

Variable home loan rates are at 30-year lows but it's the movement of fixed rates to all-time lows that has caught the attention of consumers.

Demand for fixed-rate loans jumped sharply in November, with the value of commitments increasing 19 per cent to $535.8 million.

The proportion of fixed-rate loans increased from 9.9 per cent to 12.4 per cent.

The best fixed-rate home loan deals have been announced in the past fortnight so the next round of housing finance figures are likely to show even more people turning to fixed-rate loans.

The trend numbers tell the tale of a housing sector in moderate recovery, a plus for the economy but hardly a portent of boom times ahead.

Housing is one of the most important employment-generating sectors in the economy and is typically the last to take off in an upswing.

As well as creating jobs for construction workers and renovators, housing provides huge spin-off benefits to the manufacturing sector, which produces the appliances and fittings for homes.

Manufacturing provides more than a million jobs in the economy, the most of any sector, and its success usually ensures faster reductions in the unemployment rate.

A Commonwealth Bank economist, Mr Michael Blythe, said: "Housing finance commitments are continuing to trend up in underlying terms. It is fair to say, though, that the rate of improvement is lagging behind what would otherwise be expected, given record levels of home loan affordability."

BT Australia's chief economist, Dr Chris Caton, remained optimistic about the future for housing, although he acknowledged that the November figure did not look good.

"From time to time it looks for all the world as if the recovery is dying on its feet, but it always seems then to get a second, or third, wind," he said.

"We've said it many times before - the extraordinarily good level of housing afford-ability should underwrite a continued recovery throughout 1998, although the velocity of the recovery is unlikely to be great."

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