Australia | May 12 2010
By Chris Shaw
The market got it broadly correct in forecasting Australian housing finance numbers for March, given the 3.4% decline in owner-occupier finance numbers is not far from the consensus estimate of a 3.0% fall. As National Australia Bank Capital chief economist Robert Henderson notes, the March fall comes on the back of 2% decline in February.
Westpac suggests the data further confirms the Australian housing cycle is evolving, as investors are returning in greater numbers to take up the slack from a weaker first home buyer market.
The data reflects this, as ANZ Banking Group economist David Cannington notes the value of investor approvals rose by 3% for the month. He suggests this shows the investor segment still sees value in the market despite rising interest rates. Henderson agrees, noting investment spending has been rising since early in 2009.
In contrast, the removal of stimulus measures continues to have a significant impact on the owner-occupier end of the market, Cannington noting the number of first home buyer commitments fell 1.6% in March and has declined by 67% since last October.
One key to the data in Westpac's view was finance for new dwelling construction is now down 26% over the past five months. The bank suggests while past strength in approvals should deliver some upswing in construction activity this year, the trend implies a cooling of activity levels during 2011.
Looking at the investor market, Westpac suggests the key will be whether investors are just buying existing housing stock or looking to invest in new housing projects. There remains a need for further additions to Australia's housing stock given pent-up demand and strong population growth.
Cannington agrees there is a risk the slowing momentum in housing finance commitments will continue to create concerns regarding undersupply in the Australian housing market. With construction loan approvals down 7.1% in March, the fall in this category is now 20.2% since last October.
In Cannington's view this suggests housing supply will continue to slow into 2010 and so keep the market short of the supply necessary to keep up with demand. He expects this should see house prices continuing to grow in 2010.
Westpac notes the Australian dollar weakened slightly on the back of the housing data, the market seeing the numbers as adding support to the view the Reserve Bank of Australia (RBA) is likely to be on hold with respect to interest rates in the near-term.
Henderson points out housing is seen as a leading indicator of economic activity in Australia, so the downturn in housing lending might suggest a slowing in the growth rate could be coming. But the bank also sees the data as pointing to a slowing in housing demand and house price growth, which adds support to the RBA pausing with respect to further rate hikes in the short-term.
