Neil Wilson |  Herald Sun | July 12, 2011
http://www.heraldsun.com.au/business/welcome-mat-out-for-home-loans/story-fn7j19iv-1226092620506

The number of home loans approved by lenders is rising in a signal that stability is returning to the housing market.

Ppprovals in May rose 4.4 per cent to 49,437 in an indication home buyers were gradually returning to the market following the interest rate rise late last year.

The release of figures came as Deutsche Bank published a stress test on the Australian banking system, warning that in a collapse in property prices, the major banks would lose billions of dollars.

Deutsche Bank analysts Gus Medeiros and Colin Tan said that if house prices were to tumble 30 per cent and the default rate climbed to 9 per cent, the major banks would lose $7 billion.

That dire scenario is linked to the banks' high exposure to the mortgage market and dependence on overseas funding and tougher liquidity rules from the Basel Committee on Banking Supervision.

Mortgages make up 60 per cent of the total lending on the major banks' books.

Yesterday's Australian Bureau of Statistics data revealed that renovations of existing dwellings accounted for the lion's share of the new loans, at 42,456, rising 4.1 per cent over the previous month.

Loans for construction (4865 dwellings) climbed 6.2 per cent and finance for new dwellings (2116) was up 4.6 per cent.

Total housing finance, including loans to investors, rose 2.9 per cent by value in May to $20.5 billion.

HSBC economist Paul Bloxham said indications were that home buyers had regained some confidence in recent months to seek loans after the interest rate rises last November.

"That's what was driving the decline earlier in the year so this figure indicates a levelling out, back to more normal levels," he said.

"We don't expect to (see) any further rapid decline or (for) it to pick up particularly rapidly."

Other economists said the jump in home loan approvals also reflected a recovery in the housing sector following the Queensland floods.

Mr Bloxham said the prime driver of economic growth remained the resources sector.