ABS Building Approvals show that the total number of dwellings approved fell 1.3% in April 2011, in seasonally adjusted terms, after rising 8.6% in March.

Dwelling approvals decreased for the month of April in New South Wales (-12.9%), Western Australia (-9.6%) and Tasmania (-8.7%) while Queensland (+29.2%), South Australia (+9.9%) and Victoria (+0.3%) recorded increases in seasonally adjusted terms.

In seasonally adjusted terms, approvals for private sector houses fell 3.3% in April with falls in Victoria (-6.2%), New South Wales (-3.8%) and Queensland (-0.7%) while there were rises in Western Australia (+5.1%) and South Australia (+0.9%).

The value of total building approved fell 18.8% in April in seasonally adjusted terms. The value of total residential building fell by 1.3% while non-residential building fell by 38.6% after a 47.4% rise in March.

Perhaps the best we can say is that the pace of the fall may be slowing as the peak in approvals last March becomes a fading statistical memory:

But that really is a glass half full view of the world, cause with the 12 month rolling approvals still sitting around ~164,000 there is plenty of room on the downside for this measure of the health of the Australian economy to unravel.

With the domestic economy in full retreat the odds of another rate rise are becoming very long indeed.

While the commodity boom may have benefited the few that work in the industry, the balance of the Australian economy has been struggling along with tightening credit and rising consumer prices. With leverage in the suburban margins of our cities at budget stretching levels already, it is not surprising to see that retail sales continue to contract in real terms (here).

This softness is being mirrored in building approval data that is looking somewhat reminiscent of the GFC trough (here).

The rolling over in building approvals looks to have some ways to go – with the annualised run-rate for March up around ~167,500. As discussed previously, we don’t subscribe to the view that there is some ‘shortage’ in supply. Without additional government support (will the government really be able to restart the kiln with even more first home buyer handouts?), the housing construction industry is in for some lean times.

One final chart, the misery index remains at levels that signify a satisfying shortage in misery – at least in historical terms. But with the Fed intent on ultimately restoking wage inflation (how else will we pay off the debt?), I’m expecting that this particular metric will gain in prominence as it climbs back up the hill.

The floods across the East coast are being pointed at as culprit – perhaps there will be a bounce-back once the rebuilding commences (to the extent there is rebuilding as opposed to a good hard scrub). Still, another interpretation could be that the more recent softness is just a continuation of the downtrend that has been underway for some time.

Certainly, if you place this data against the most recent building approvals (ABS release here), the argument that housing construction has passed a cyclical peak looks to carry some weight.

With the average size of loans confirming the retreat – and even if you don’t subscribe to the theory that debt needs to keep rising to sustain the building industry – it’s hard to see any growth in the sector any time soon.

Heaven help us if our terms of trade should falter, cause without the China machine to feed, we’ll be waving goodbye to the two-speed economy for all the wrong reasons.

First up , building approvals are traditionally soft in the early part of the year – but even after stripping this effect out it is clear that approvals are rolling over.

First home buyers have deserted the markets and are now being joined by more seasoned campaigners.

Not since the introduction of the GST in 2000, has the average size of loans actually fallen year on year. With first home buyers leading the charge, it looks increasingly likely that we’ll be visiting the dark side of the ledger in the not too distant future:

Which brings us to the state of the household balance sheet.  According to the RBA, household debt – that is the aggregate of owner occupied and investment property loans plus personal debt – continues to grow but at ever slower rates.  If house prices are to fall over the coming quarters, then the chances are that pretty soon the Australian consumer will join those of the US in outright deleveraging.

All-in-all not a great outlook from the engine of the economy – the housing sector.

At first blush, recent releases suggest a more positive tone – total volume of housing debt looks to have broken its downtrend (from ABS’s release here):

Principally driven by a jump in the total number of loans (ABS data here):

But this is where the good news ends. Certainly the decline in the average loan size to first home buyers suggests a different story:

This is not good. First home buyers are the veritable engine of the housing construction industry and by extension vast tracts of the Australian economy. Not surprisingly then, building approvals (ABS release here) look to have turned lower:

If the jump in housing finance is being driven by older demographics thinking recent softness in housing prices is a buying opportunity, we may soon see this resolve tested. SQM Research (here) reckons property listings across Australia were up 44% on a year-on-year basis to December (for a little bit of fun you can check out the change in listings in your own neighbourhood here).

Conclusion – a property price correction looks like short odds for 2011 – expect our various government’s to throw more money into the housing pit.

]]> http://www.datadiary.com.au/2011/01/18/australian-housing-finance-update-confirming-the-turn/feed/ 3 http://www.datadiary.com.au/2010/09/30/australian-building-approvals-aug10-the-expansion-has-ended/ http://www.datadiary.com.au/2010/09/30/australian-building-approvals-aug10-the-expansion-has-ended/#comments Thu, 30 Sep 2010 05:24:19 +0000 Rohan Clarke http://www.datadiary.com.au/?p=3580 ABS Building Approvals out today (here) – in summary:

• The trend estimate for total dwellings approved fell 2.7% in August 2010 and is showing falls for six months.
• The seasonally adjusted estimate for total dwellings approved fell 4.7% following a rise in the previous month.

Sounds ominous. Our reckoning has the residential market stalling but at reasonably high levels.

As we’ve noted before, ~170,000 new dwellings a year should be sufficient to meet demand (for background start here). It’s hard to believe the RBA will raise rates then, with momentum seemingly heading south:

Still the Governor and his minions have been pretty forthright in the views of late. Let’s see what next Tuesday brings…

ABS Building Approvals show that the total number of dwellings approved rose in July 2010 following falls in the previous three months in seasonally adjusted terms.  According to the ABS, New South Wales (9.7%), Victoria (12.1%), South Australia (8.3%) and Tasmania (4.4%) recorded more dwelling approvals this month, while Queensland (-18.3%) and Western Australia (-4.9%) recorded less dwelling approvals in seasonally adjusted terms.

Our approach is to remove the seasonality bias by reviewing data on a 12 month rolling basis.  In this context, building approvals for new dwellings continued to rise in July but look to be peaking as the rate of expansion slows:

This is consistent with recent home lending data (here) and the liklihood that the demand/supply situation looks to be broadly in balance around ~170,000 new dwellings per annum (see here for background):

One further development that is notable is the changing nature of new dwellings.  The following chart maps the ratio on new houses to new units across the last 30 years.  We can clearly see the distorting effect of the recent first home buyers assistance:

Couple high house price to income levels with the baby boomers vacating their nests over the coming years, and think we can expect this ratio to plum new depths.

• The trend estimate for total dwellings approved fell 2.7% in June 2010 and is showing falls for four months.
• The seasonally adjusted estimate for total dwellings approved fell 3.3% and has fallen for three months.

Looking to the original data, building approvals continued to expand as measured by the change in the 12 month rolling average, but at a slowing rate.

Seems reasonable that building approvals should be plateauing given that the current annualised run rate is around 170,000 – which is broadly sufficient to meet demand.

Building approvals around these levels are a net positive for the domestic economy.  The trick will be to see if this level can be sustained for any meaningful length of time – as has proven difficult time and again over recent decades.

Looks suspiciously like the momentum is coming out of this indicator too.

Still if we can maintain 160,000 dwellings per annum that’d be a great outcome.

Building approvals have now officially recovered.  The last 12 months has seen 157,000 dwellings approved for construction and the current run rate suggests that the rising trend is set to continue for a month or two yet.  This means we are approaching the current annual dwelling requirement from immigration of around 165,000.

History would suggest that the rate of change in building approvals is about ready to plateau – which given the current monthly run rate is ~190,000 dwellings per annum, not to mention rising interest rates, is a pretty fair bet.