Can't Rate Reductions Increase Approvals?

The growth in housing approvals does not seem to react as strongly as expected to the low interest rate environment, said an economist from Westpac.

Housing approvals fell 0.2% in the three-month period ending in December, a reversal from the 10.9% jump recorded the previous month. On an annual basis, approvals increased by 2.7%.

The good November numbers are due to a 50% increase in approvals in New South Wales, which registered a 50% increase in approvals. Outside the state, approvals over the month actually fell 0.9%.

"We have attributed much of this to a delayed effect associated with regulatory changes introduced in October and December is expected to reverse the peak," said Matthew Hassan, economist at Westpac, in a think tank article. in Property Observer.

This is exactly what happened in New South Wales: it experienced a sharp drop in approvals in December, down 30% on a monthly basis. This, however, was overshadowed by Victoria's steeper drop to 34%.

Read also: Rebound in construction approval likely to be "short-lived"?

Weak approvals were also apparent in other states: South Australia and Queensland saw declines of 20% and 5% respectively during the month.

"Our initial point of view is that this is, again, largely a temporary effect related to the bumpy high-rise project pipeline. That said, Victoria shows a decent increase in non-high approvals, which may also be an early sign that the recovery of the broader market is starting to spill over to non-high segments, "said Hassan.

In terms of type of housing, non-high approvals increased 4.1% per month, but are still down 0.8% in annual terms. At the same time, approval increased by 19% in the low to medium height segments. High-rise approvals, on the other hand, fell 11% after rising 40% in November. Approvals for private homes also decreased 0.1%, bringing the annual decline to 7.1%.

Renovation approvals also lagged behind, down 1.8%. On a quarterly basis, approvals in this segment decreased 5.5%, the fastest rate of decline since 2016.

Read also: Is the decline in approval becoming "alarming"?

Hassan said these figures should be taken with more caution given the volatility from December to January.

"Overall, we continue to expect approvals to show a moderate and slow response to rate cuts," he said.

While Hassan expects the skyscraper segment to remain on a lull of approval, he believes there would be gradual growth in the skyscraper segment -sky by mid-2020, slightly stimulated by the reconstruction linked to bush fires.

"Although the monthly profile of total approvals may turn into a more marked turning point, the details suggest that the underlying cycle is spinning more slowly. Anyway, it will likely be a few more months before we get a reading clear, "Said Hassan.

Despite this, the slight improvement seen in the final months of 2019 could suggest that the building industry will not be a drag on Australia's economic growth, said economist Angela Lillicrap the Housing Industry Association.

"The start of 2019 was difficult for the residential construction industry with the credit crunch, falling house prices and the uncertainty surrounding the federal elections which curtailed confidence, "she said in a separate analysis.

Lillicrap said that continued growth in house prices will help attract more investors and increase market activity.

Maree Kilroy, economist at BIS Oxford Economics, said that the positive momentum in the established real estate market could set the stage for a resumption of approvals this year.

"All states and territories are expected to experience growth over the next 12 months, driven mainly by the home and mid-market segments," said Kilroy.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.