Loans issued to fund the construction of new homes rose 9.2 per cent in October to a 15-year high, official figures show, after a 9.8 per cent rise in September.

The jump came as the Reserve Bank raised rates for the first time since March last year to 3.25 per cent, and its governor, Glenn Stevens, signalled further rises.

Since the figures were taken official rates have risen to 3.75 per cent and most mortgage rates have increased by a bigger margin.

Lending for new construction has more than doubled from lows of August last year, prompting claims of a housing construction boom gathering pace by the month.

Analysts say the strength in demand for housing finance was driven by low interest rates and subsidies for first home buyers - who could claim $21,000 for new homes until the end of September.

"Demand for housing has surged over the last year, reflecting the very favourable combination of historically low interest rates, government incentives, strong population growth and pent-up demand for housing stock," said a senior economist at Westpac, Andrew Hanlan.

Although demand is expected to fade as rates creep up, Mr Hanlan said the surge in loans for building new homes pointed to a looming housing construction boom.

However, the figures also showed buyers in other parts of the market were starting to feel the pinch.

The total number of new owner-occupier housing loans fell 1.4 per cent in October, compared with a 3.3 per cent rise in September.

First home buyers' share of the market also eased to 26 per cent, from 29.5 per cent in May.

Analysts expect housing investors will pick up some of the slack in the property market as first home buyers retreat in 2010.

Source: Sydney Morning Herald
Date: Thursday, 10 December 2009
Author: Clancy Yeates