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Weak home loan data sets stage for rate cut
Weak home loan data sets stage for rate cut

The number of home loan approvals fell for a second consecutive month and should make an interest rate cut in May more certain, economists say.

Australian Bureau of Statistics data shows the number of home loans approved in February fell 2.5 per cent.

Economists' forecasts had centred on housing finance commitments to fall 3.4 per cent for February.

RBC Capital Markets senior economist Su-Ling Ong said the housing finance figures were a little bit better than she'd expected.

"That gentle upswing we saw for the second half of last year looks to be turning a little bit," she said.

"We think that approvals were boosted (in late 2011) in part by some tax breaks for first-home owners in NSW and that looks to be unwinding.

"It looks like the trend is flattening out here."

Consumer confidence has fallen to its lowest level in eight months, according to figures released this morning.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 1.6 per cent in April from 96.1 in March to 94.5 in April.

That and the weak housing sector should encourage the central bank to cut the cash rate in May, Ms Ong said.

At its April board meeting last week, the Reserve Bank of Australia kept the cash rate at 4.25 per cent, but the bank's governor Glenn Stevens flagged the possibility of a cut in May.

"The data falls on the side of the ledger that suggests there is scope for the RBA to lower rates further and lend some support to the sectors," Ms Ong said.

She said she expected a cut in the cash rate in May and another in the September quarter, as long as inflation stayed subdued.

CMC Markets chief market strategist Michael McCarthy said he was not surprised by the data, with lenders less affected by the RBA's rate cuts in late 2011."We were expecting a fall," he said.

"We'd seen stimulus to the market through the November and December cuts, and we were expecting some of that exuberance to wane."

However, rises in lending commitments amongst investors were a good sign, he said.

"The breakdown is interesting. A 4 per cent fall in owner-occupier is offset to some extent by 4.4 per cent gain in investment lending," he said.

"It's interesting to note that investors are still there, and there appears to be some confidence lingering after those Reserve Bank cuts."

Mr McCarthy said he did not expect the data to have much influence on the RBA's next rate decision.

"It will remain one of the areas that the Reserve Bank takes into consideration, but this data won't make it any more or less important than it was previously," he said.

Westpac senior economist Andrew Hanlan said a 9.4 per cent drop in housing commitments in New South Wales and a 1.1 per cent fall in Queensland had dragged the national figure into negative territory.

"The state data suggests that the picture is not as weak as the headline suggests," he said.

"In the other states, you are seeing modest gains but they are certainly small increases."

However, he said, the data added to the case for an interest rate cut in May."

Certainly, the Reserve Bank would have been hoping to get some traction in the housing sector but that just hasn't happened to date and it looks unlikely to now.

"The housing sector certainly does need extra support and we would expect them (the RBA) to act immediately."