The number of loans granted to build or buy houses and apartments declined 1.2 percent from December, when they rose a revised 2.1 percent, the statistics bureau said in Sydney today. The median estimate in a Bloomberg News survey of 16 economists was for a 0.6 percent drop in approvals.

Reserve Bank of Australia Governor Glenn Stevens held the benchmark interest rate at 4.25 percent last week for a second straight month as signs mount that Europe is containing its sovereign-debt crisis and the U.S. recovery is gaining strength. The central bank lowered borrowing costs in November and December to buttress the housing market, support employment and boost confidence among consumers who are saving more.

The January drop in housing finance was largely driven by “a combination of weak house price growth and the unwinding of New South Wales first home buyers with the removal of NSW first home buyer stamp duty concessions on established dwellings,” David Cannington, an economist at Australia & New Zealand Banking Group Ltd. (ANZ), wrote in a research report before today’s release.

Today’s report showed the total value of loans fell 2.3 percent to A$20.7 billion ($21.8 billion) in January.

Investment Properties

The value of lending to owner-occupiers gained 0.1 percent, the report showed. The value of loans to investors who plan to rent or resell homes dropped 7.1 percent.

First-home buyers accounted for 20.3 percent of dwellings that were financed in January, down from 20.9 percent in December and higher than 16.2 percent a year earlier, the report showed today.

Home loans weakened before Australia’s four biggest banks in February raised their standard variable mortgage rates independently from the RBA, drawing criticism from the government. The central bank has said that competition for deposits, recent covered bond sales, and the cost of swapping funds raised offshore into Australian dollars had added to the price lenders paid to raise money.

Commonwealth Bank of Australia increased the interest on a variable-rate home loan by 10 basis points to 7.41 percent, followed by National Australia Bank Ltd. (NAB), which added 9 basis points to 7.31 percent. Westpac Banking Corp. (WBC) boosted the cost by 10 basis points to 7.46 percent on Feb. 10, after Australia & New Zealand Banking Group Ltd. added 6 basis points to 7.36 percent. ANZ Bank and Westpac cited higher debt premiums and competition for deposits.

Job Cuts

Australian employers unexpectedly cut payrolls in February and the unemployment rate rose for the first time since August as a stronger currency hurt tourism and manufacturing, a government report showed last week.

The central bank said in a quarterly statement on Feb. 10 that retail spending remains subdued in Australia and property was weak. Housing transactions are “around the lowest they have been over the past two decades,” it said.

A government report last month showed Australian house prices plunged by the most on record in 2011 as global economic uncertainty and concerns about its impact at home kept a lid on demand.

The index measuring the weighted average of prices for established houses in eight major cities slid 4.8 percent from a year earlier, the Feb. 1 report showed, the biggest calendar- year drop since the data began in March 2002. They fell 1 percent in the three months to December from the previous quarter, when they retreated a revised 1.9 percent.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

http://www.bloomberg.com/news/2012-03-13/australian-home-loans-fall-double-economists-forecast-first-in-10-months.html

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