Building Approvals Slow in Australia
Date: 1 October 2011
Building approvals continue to slow across Australia as the effects of international debt concerns and worries over whether the large economies – the USA, Europe and China - will see continuing slowdown. The investment booms that we saw in Australia’s residential real estate boom have ground to a halt and housing construction (apart from renovation) is at 20-year lows. It is clear too that the massive housing undersupply and consequential affordability crisis has the market at a tipping point. A multi-pronged approach to reform that seeks to encourage new supply and support affordability is necessary from governments at all levels.
Building approvals did rise in July, snapping three months of falls, but failed to increase as much as expected. The numbers are hardly convincing: building approvals rose 1 per cent in July following a 3.6 per cent fall in June, seasonally adjusted, according to the Australian Bureau of Statistics. The increase was less than the 2 per cent rise in the month tipped by analysts.
On an annual basis, approvals fell 15 per cent in the year to July, following a 15.5 per cent drop in the year to June. Analysts predicted a 12.4 per cent fall in the month. When compared to expectations, this was a little weaker than consensus opinion and comes off a period of consistently falling building approvals. Thus it could be viewed as really just stabilization at pretty soft levels rather than an indication of things picking up.
All the indications are that, when taken with weak home loan data, building approvals will probably remain flat over the rest of 2011.
The real estate market has shown signs of strain this year, posing risks for employment growth in construction and as well as bank earnings in the months ahead. Recent data showed that new home sales have fallen to a 10-year low in July, according to the Housing Industry Association, dropping 8 per cent in July, following an 8.7 per cent fall in June.
Home prices, on a seasonally adjusted basis, have sunk 2.7 per cent in 2011 so far, according to RP-Data-Rismark, after rapid run-ups since 2008, making the purchase of property less attractive.
The other factor that is emerging is that banks deposits accounts are at record levels. This reflects consumer caution and their lack of spending.
Are buyers waiting in the wings? Mixed data indicates that on the one hand buyers are on the sidelines while on the other hand affordability is still low especially give the increase in living costs associated with rapidly rising utility costs.
Borrowers’ hopes of interest rate cuts, triggered by offshore market jitters and signs of a slowing economy, may prove short-lived, as well. Most market commentators point to a small chance of a rate cut this year although the reduction in interest rates by the banks suggest that there will be no rate rises in the foreseeable future.
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