Australian mortgage rebound a positive sign for home prices

SYDNEY, April 9 (Reuters) - Australian home loans bounced unexpectedly in February in a rare positive sign for the country’s subdued property market leading some economists to speculate housing price falls may have found a bottom.

Home loans, a lead indicator for housing prices, gained 2 percent in February after falling for successive months since October 2018. Most economists had expected either a small rebound or decline in lending volumes. Loans to owner-occupiers rose 3.4 percent in value terms, the first rise since October and the largest since August 2015. Finance for first-home buyers climbed 3.6 percent, the strongest since November 2017.

“It is early days, but the lift in lending in February is encouraging,” CommSec chief economist Craig James said.

Separate data out on Monday showed auction clearance rates in Australia’s two largest capital cities - Sydney and Melbourne - held up around 50 percent last week. Although better than 2018, that is still a far cry from figures of above 70 percent clocked during the boom time that ended in 2017.

Tuesday’s data will be welcomed by the country’s central bank which is concerned steep house price falls could weigh on spending by heavily indebted households. Falling home prices could also weigh on construction activity, which would eventually impact the business sector.

“Overall, the February update was firmer than expected, consistent with the improved tone from auction market activity and a slowing in price declines in recent months,” said Westpac economist Matthew Hassan.

“Some of the effects of tightening credit conditions may also be dissipating,” he added.

Australian banks, which heavily rely on mortgages to grow their business, had heavily clawed back lending over the past year as a powerful public inquiry unearthed a series of malpractices forcing them to tighten lending standards.

“That said, the signs of improvement are still only tentative. The market may be starting to find a base in terms of finance activity but conditions remain weak overall,” Hassan said.

House values across Sydney are forecast to tumble a further 9.3 percent in 2019 after 5.5 percent fall last year, according to a CoreLogic-Moody’s Analytics forecast published on Tuesday. It predicted house values in Melbourne to decline sharply this year, following a modest correction in 2018.

A property downturn is also likely to weigh on already tepid inflation. Housing makes up over 20 percent of Australia’s total inflation basket which includes four broad categories - rents, new dwelling purchases, utilities and maintenance and property rates.

In light of these concerns, the Reserve Bank of Australia (RBA) has brought the prospect of rate cuts back to the table after keeping policy at a record low 1.50 percent since August 2016. (Reporting by Swati Pandey; Editing by Sam Holmes)