Australia | Jul 30 2009
By Chris Shaw
Having fallen in May, Australian building approvals have bounced back in June, recording a rise of 9.3% driven by a 4.9% increase in detached dwelling approvals. This suggests ANZ Banking Group economist Dr Alex Joiner now appear to be a solid upward trend.
The released figure was in line with Westpac’s forecast of a 9.0% increase but the bank notes it was slightly above market consensus, which had been for a gain of 8.0%. Approvals in other dwellings surged a much larger 27% but as Joiner notes this measure has been very volatile in recent months and so it is not a great indicator.
Of greater importance in his view is while approvals have risen to more than 11,000, they remain below the long-term average of 13.000 per month. This means continued strength in approvals is required if Australia is to address its current housing shortage, which would also alleviate the fears a lack of supply will drive up house prices.
Westpac points out despite June’s gain, approvals are only 18,000 above their lows of late last year, which the bank suggests is an indication the current problem of getting developer finance remains an issue in the market.
As well, today RB Data released its update on housing prices and this showed a 2.1% gain in the June quarter, though the increase for June itself was only 0.4% and so down from the gains recorded in both April and May. In the view of Joiner, today’s data show house prices are rising despite risks from rising unemployment, a tough labour market and with continued pressure on household incomes. All this combined offers a case for some action from the Reserve Bank of Australia (RBA).
Joiner notes an increase in official interest rates would be counter-productive to the housing shortage issue given the negative correlation between building activity levels and interest rates, so for now he expects tough talk rather than any concrete action on rates from the RBA.
Short-term Joiner expects a weaker labour market and softer economic conditions will slow the run in house prices, meaning no change to his expectation the RBA will keep the cash rate on hold at 3.0% until sometime late in 2010.
Commonwealth Bank currency strategist Joseph Capurso takes the view while today’s numbers and other recent economic data mean the chances of a further cut to rates have lengthened considerably, the market is likely taking too bullish a stance in pricing in rate rises from as early as February next year.
The Australian dollar was little changed on the back of the data, spiking slightly higher initially but then settling back to levels around US81.60c, Westpac suggesting the lack of any reaction highlights the market’s lack of focus with respect to domestic data at present.
