Australia | May 05 2010
By Chris Shaw
Australian building approvals for March surged well above market expectations, recording a 15.3% jump compared to a consensus estimate of an increase of around 0.8%. The result follows a decline of 2.7% in February.
ANZ senior economist Ange Montalti notes the gain was driven by a 51% rise in other dwellings, as total detached housing approvals rose by a more modest 0.7%. In total he notes approvals have risen 52% over the year, with the other dwellings sector doubling over the same period.
The strength in the other dwellings sector is unlikely to be sustained in Westpac's view, given the volatility of data from this part of the market. As an example of this volatility the bank notes apartment approvals fell by 32% in February.
According to Montalti, the data show the overall trend for building approvals remains positive but is moderating, with detached housing numbers driving the slowing in momentum.
Westpac suggests there appears to be a significant pipeline of projects that have appeared in the housing finance data, which is up 70% trough to peak, but have not appeared in the approvals figures. These have only risen by 35% trough to peak.
Westpac sees this as enough to support private house approvals, which it sees as topping out rather than moving into a sharp cyclical decline. For Montalti the fact approvals have remained resilient in the face of monetary policy tightening reflects positive underlying fundamentals, these being a shortage of stock and strong population growth.
As well, Montalti notes there has been a general improvement in economic and labour conditions. This has also had a favourable impact and helped counter the rate hikes of recent months and a winding down of government assistance.
According to National Australia Bank, today's report is good news as Australia needs more houses to cater for the growing population and household formation. The rise in approvals is seen as evidence this is starting to happen.
As well, NAB suggests the rise in private sector approvals gives reason to expect the construction sector won't slump when current fiscal stimulus measures such as building in schools runs its course.
In NAB's view, the Reserve Bank of Australia will be happy with the rise in approval numbers, though it is also a leading indicator of economic activity and so implies strong economic growth. So while rates may currently be on hold, further increases in the cash rate can be expected later in the year.
Westpac notes the dollar was modestly higher on the release of the numbers but quickly ran out of steam given the somewhat mixed nature of the data overall. Looking at coming sessions the bank suggests the Aussie dollar is most likely to take out support against the US dollar at the 0.9077 level.