Australian homebuyers fled the home loan market in July, even before the August interest rate hike was confirmed.
The total value of new housing loans sank by 7.4% to $22.54bn according to the Australian Bureau of Statistics. The value of owner-occupied housing loans plunged by 7.7% while investment loans dropped by 6.8%. The number of fixed rate loans also fell significantly to 14.8% in July from 17.0% in June.
CommSec economist Martin Arnold wrote in a report that there would be further weakness in the numbers, since the data predates the most recent rate hike.
"The cautiousness exhibited by property investors will be felt for many months to come. Anyone who had been planning on purchasing a home or investment property would want to have a greater amount of certainty as to the likely level of interest rates before handing over their hard-earned cash," he wrote.
"In July, when the data was collated, the prospect of a rate rise had increased and this pushed the number of prospective homebuyers that decided not to take up their loans to a fresh record."
On the bright side, the number of first homebuyers recovered in the same month to 17.4% from 16.7% in June.
Arnold also predicted that the market will recover, but the improvements will be delayed until at least 2008.
"The rate hike in August will hurt rather than help the housing sector as homeowners face increased living costs. Affordability is a main reason for the sluggish growth in the property market in recent years. Tenants will also be no better off, with the surge in rents likely to continue as landlords try to offset greater interest payments."