Australia | Oct 07 2009
By Chris Shaw
Australian housing finance approvals for August fell 0.6%, an outcome largely in line with market expectations and one that ANZ Banking Group economist Dr Alex Joiner suggests is not as weak as the headline numbers indicate. When refinancing is stripped out ,new approvals actually rose by 1.3% in the period which is a solid result.
Westpac senior economist Andrew Hanlan was also positive on the numbers, suggesting the details indicate a construction boom is on the way as the demand for housing continues to surge given the favourable combination of low interest rates, government incentives, strong population growth and pent up demand.
As evidence of this, Hanlan points out finance for construction of new dwellings for owner occupiers was up 4.6% in the month, and is now up 69% over the past year. New finance commitments to owner occupiers rose 13% for the month, meaning new lending has increased by 39% over the past 12 months in this category. He expects this increase in construction will be a major driver of the Australian economy through 2010.
The scaling back of first home buyer grants means this sector of the market is continuing to lose steam, with approvals falling by 1.5% for the month, but these buyers are increasingly being replaced by upgraders and investors. As Joiner notes, upgrader approval numbers rose 2.8% for the month, while the value of investor loans approved increased by 7.6%.
Commonwealth Bank economist James McIntyre agrees, viewing today’s figures as more evidence investors are returning to the Australian property market, supported by improving confidence in the economic outlook generally and a waning of fear related to job security.
Hanlan notes this increase means investor loan approvals are now 18% higher for the year, the trend going in the opposite direction to that of first home buyers, as while lending in that category is up 68% from a year ago it has fallen by 15% in the past three months.
While recent property price gains are unlikely to have been the trigger for yesterday’s interest rate increase by the Reserve Bank of Australia (RBA), Joiner suggests they may have contributed to the timing of the increase, which came sooner than many in the market had expected. The bigger issue in coming months, in his view, is whether the emerging recovery in building approvals can be maintained as interest rates increase, as developer sentiment remains very weak at the present time.
According to Joiner the modest increases to interest rates expected over the short-term are not likely to have a detrimental impact on approval levels across the property market as while it will cool the market to some extent, affordability remains better than it was in 2008.
As Hanlan points out, even allowing for yesterday’s increase monetary policy in Australia remains at very accomodative levels and so should continue to be supportive of the upswing in the housing sector. This should continue to encourage investors into the market and he expects investor finance numbers will rise further in coming months.
McIntyre expects the RBA to follow yesterday’s rate hike with a further 0.25% increase in November, which would take some more of the emergency stimulus implied by the current cash rate out of the system. In his view upcoming labour force and CPI data will be the keys to how gradually the RBA decides to further move monetary policy away from its currently accomodative setting.