Australia | May 12 2009
By Chris Shaw
In previous economic cycles it has been the housing sector and in particular housing construction that has led the Australian economy out of recession and in the view of Westpac Bank today’s housing finance data suggest a similar outcome in the current cycle.
Housing finance in March rose 4.9% in registering its sixth successive increase, an outcome the bank suggests was in line with expectations given consensus was for a 4.5% increase. Westpac itself had estimated a lift of 5.5% thanks to ongoing low interest rates and the current incentives on offer for first home buyers.
The figures show this combination is having an effect as Westpac points out new lending to owner occupiers is up 30% over the past seven months and finance to owner-occupiers to construct new dwellings has risen a litle more than 40% in the past four months.
ANZ Banking Group economist Dr Alex Joiner suggests today’s data support other anecdotes of a continued improvement in Australian property market activity levels. Commonwealth Bank economist James McIntyre agrees, noting while in recent months the improvement has been a first home buyer story, this month the advance is more broadly based.
Joiner sees an important element of today’s numbers being the sign upgraders are increasingly entering the market as this should allow the momentum achieved by the first home buyers boom to be maintained. He suggests this is a key to the market being able to continue to generate growth.
But as McIntyre points out, there remains a way to go for the market as a whole as while the value of lending to investors rose 4.7% in the month it remains 16.8% lower in annual terms. The trend is certainly improving though, McIntyre noting lending for construction typically provides a lead of around two months on future building activity levels and this measure increased to a new record.
Joiner also sees the data as good for the Australian construction industry. He notes construction of new dwellings was up 13.8% for the month, while purchases of new dwellings rose 4.3%. He sees this trend continuing to boost building activity, especially if the first home buyers grant continues in some form after tonight’s Federal Budget.
According to McIntre today’s data show the recent economic stimulus measures provided in Australia are having an impact on household behaviour, though he still expects the Reserve Bank of Australia will deliver an additional 25 basis point rate cut later this year as an additional boost.
There is one note of caution from today’s data in Joiner’s view, this being the likelihood unemployment will continue to rise through the year. Such an outcome, he suggests, means some of the gains in the property market seen in recent months will be capped going forward.