Falling Prices Lure Back First Home Buyers

FIRST home buyers appear to be flocking back into the housing market, lured by falling prices and perceptions that interest rates will remain on hold for months to come.

In a sign that the housing sector began to stir in spring after months of hibernation, the Bureau of Statistics said the value of new loans issued to owner occupiers (excluding refinancing) leapt to a record $8.9 billion in September - 3.4 per cent more than the previous month and 17.2 per cent more than a year earlier.

A Reserve Bank measure of house prices showed prices fell by 1 per cent in Melbourne, by 1.5 per cent in Sydney and by 0.8 per cent across Australia in the September quarter.

Economists said the price dip might have encouraged first home buyers to retest the market, clamped out for years by frenzied speculative buying by investors lured by generous tax breaks offered by the Federal Government.

In September, 17.4 per cent of all loans issued to owner occupiers went to first home buyers - the highest level for more than three years. The average first home buyer loan reached a record $219,200, compared with a record $218,300 for all owner occupier loans.

Treasurer Peter Costello said the number of loans issued to first home buyers, at 10,294, had been above the long-term average now for seven consecutive months.

"First home buyers (are) returning to the market, house prices stabilising, prospects for taking a loan good because employment is strong and interest rates still at near historical lows," he told Parliament.

In a sign that people don't expect interest rates to increase any time soon, 8.7 per cent of owner-occupier loans were fixed in September, well down from the high of 14.6 per cent set in March.

Consumer optimism has also rebounded strongly thanks to lower petrol prices. The Westpac-Melbourne Institute of consumer sentiment jumped 9 per cent in November after slumping by 13.3 per cent in September and 1.6 per cent in October.

Westpac head of economics Bill Evans said the 6 per cent fall in petrol prices since the last survey was the single biggest factor explaining the improvement.

The survey of about 1200 consumers was taken the week before the Reserve Bank released its quarterly statement on interest rates, which warned that borrowing costs could still be lifted if wages or business cost pressures turn out to be higher than expected. The survey is a composite gauge of perception about personal finances, the economy and the retail environment.

In good news for retailers leading up to Christmas, perceptions about whether now is a good time to make a major purchase surged by 9.8 per cent, although the measure remained 8 per cent lower than a year earlier.

Consumers were more confident about their personal finances and expected economic conditions.

KEY POINTS

? Average first loan hits $219,200.

? Consumer confidence has rebounded strongly.

? The petrol price is down by 6 per cent.