The value of loan approvals for home buyers rose to a seasonally adjusted 1.1% in December, while investor lending jumped by 4%, thanks to the solid rise in the amount of housing purchased for rent or resale by individuals. This upbeat news follows the decision by the Reserve Bank of Australia to keep interest rates steady at 6.25%. Economists are predicting a stable interest rates environment for the whole of 2007. Higher interest rates have been blamed for the poor showing of the Australian housing market. "All the latest housing data show a clear downward trend as last year's three rate hikes continue to bite," says Peter Jones, chief economist with Master Builders Australia. "With the full impact of the August and November rate rises yet to be fully felt, a further rate rise would have certainly deepened and lengthened the current housing downturn. Jones said that an extended cyclical downturn could run the risk of creating major demand supply imbalances as many parts of Australia are already under-building relative to population needs. He said that until interest rate speculation dies down, residential building will face strong headwinds and recovery is not expected to gain traction until the second half of the year. "Provided rates stay on hold, the combination of more stable house prices and rising household incomes should eventually improve housing affordability and encourage first homebuyers and upgraders back into the market," he added.

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