This Friday the housing finance figures for May will be pored over by economists in Federal Treasury and especially the Reserve Bank for further evidence that new home industry is rebounding. Both institutions and their masters, along with some private-sector economists, know that a boom is taking shape in the new home market, thanks to record low interest rates — the question is its sustainability and whether it will be enough to help pick up the slack emerging in the economy from the slowdown in mining investment.
On current indications it probably will last and help cushion the wider economy from a big hit from the effects of mining investment returning to more sedate levels. In fact, such has been the acceleration in new home approvals and construction since late last year that in more normal times the Reserve Bank’s next move in interest rates would be an increase as it sought to control the pressures being built up in the volatile housing sector.
Consider the evidence. According to the Housing Industry Association, new home sales in April hit an 18-month high. In the April housing finance stats, finance for the construction of new homes hit the highest level in three years (since April 2010), while finance to purchase a newly built home hit the highest level since the middle of 2007, as there GFC started to erupt overseas (all seasonally adjusted).
And last Thursday’s building approvals for May seasonally adjusted new private house building approvals rose 2.5% in May, to be 11.6% higher over the year (10% in trend terms). That’s the strongest rate for more than two years, and the number of approvals — 8113 (seasonally adjusted) — was the highest since March 2011.
Private house approvals have now risen in each of the past five months, and with some states continuing their grants for first-home building, (NSW’s changed on July 1 from first-home buyers to first-home builders only), it’s clear that the the long-awaited rebound in this industry is now underway, although it is happening slowly.
The extent of the boom can be seen by comparing the year to May rise of 11.6% rise (seasonally adjusted) with the 3.8% fall in the year to December (i.e. for all of 2012).
Many media reports concentrate on overall approvals, but they continue to be volatile, influenced by the bunching of local government approvals each month (or delays) for units, apartments and townhouses. For example, overall dwelling approvals (which include units and apartments, townhouses, etc) fell 1.1% in May after a 9.5% rise in April. That was because of a 9.8% fall in non-house private dwelling approvals in May, against the 18% rise in April.
In his speech in Brisbane last Wednesday, Reserve Bank governor Glenn Stevens pointed out the extent of the gathering surge in housing activity.
“Dwelling investment has been low for an unusually long period, with at least some households intent on reducing debt, thereby strengthening balance sheets. Households have accumulated a good deal of cash as well over recent years. Meanwhile, population growth is quite solid and it has been picking up a bit of late. If anything, we will need to build more dwellings than we have been over recent years. Meanwhile, interest rates are low, dwellings are more ‘affordable’, and finance approvals for housing purchases have risen by 16 per cent over the past year.”
The purchase of existing homes hardly adds to economic growth. But the financing and construction of new homes (and units, townhouses, etc) adds real value and is a big growth driver. And it’s exactly the transition the RBA wanted to see follow the peak of the mining boom.
So they are calling this a housing boom now. Interesting.
I am not convinced it is a boom yet, to early to tell and prices need to keep rising for a fair bit yet to be a boom. Although if present rate of increases in Sydney, Melbourne and Perth continue it would be 15%-20% YoY which is boom level. Time will tell.
ABS Building Approvals show that the total number of private sector house approvals rose 1.5% in trend terms in May. This contributed to the 1.0% increase in the total number of dwelling units approved.
Dwelling approvals increased in May in the Australian Capital Territory (4.1 per cent), Tasmania (3.6 per cent), Western Australia (2.7 per cent), South Australia (1.8 per cent), Victoria (1.2 per cent) and New South Wales (0.8 per cent) but decreased in the Northern Territory (-4.9 per cent) and Queensland (-0.5 per cent) in trend terms.
In trend terms, approvals for private sector houses increased for the six consecutive month in May. Of the states and territories, New South Wales (2.6 per cent), Victoria (2.3 per cent) and South Australia (2.2 per cent) experienced the largest rises in private sector house approvals.
The trend value of total building approved rose 1.9 per cent in May and has risen for 16 months. The value of residential building was flat while non-residential building rose 4.1 per cent.
This media release focuses on movements in the trend as seasonally adjusted month to month movements can be highly volatile and are not necessarily indicative of the underlying behaviour in approvals data.
It seems the more bears talk about a slowing economy or doom and gloom the faster property prices rise, I wonder why this is.
New home building in Australia is forecast to reach a 10-year high this year, according to the latest Housing Industry Association (HIA) National Outlook.
“Residential construction is making a vital contribution to the re-balancing of growth in the nation’s economy,” says HIA chief economist Harley Dale.
New dwelling starts are forecast to increase by 7.1% in 2014 to a peak of 180,000, following growth of 10.9% in 2013. Activity is forecast to decline in 2015 and 2016 to a level just under 170,000.
Construction is the sector economists are looking towards most intensely as the area that will pick up the slack in the Australian economy coming from a slowdown in mining activity.
A level of almost 180,000 in 2013-14 (and in calendar year 2014) would be second only to the 187,000 dwellings started back in 1994.
And after dropping to decade lows in 2013 there is huge upside potential for renovations activity, Harley Dale says.
“Two consecutive quarters of growth through to March 2014 provides confidence for our forecast of 1% growth in the total value of renovations investment in 2013/14,” he says.
“Momentum in renovations activity is forecast to build in coming years with growth of 1.2%, 2.3% and 2.5% over the three years to 2016/17. This profile would see investment exceed $30 billion for the first time since 2011/12.”
The number of people running businesses in the construction industry rose slightly in the year to February 2014, following a dramatic drop in the previous year.
Around the country, 242,500 people ran construction industry businesses in February 2014, 0.5% more than at the same time last year, according to the Bankwest Business Trends Report, which analysed Australian Bureau of Statistics labour force data.
The increase coincided with a rise in dwelling approvals, with the Australian Bureau of Statistics reporting a 23.2% increase in dwelling approvals over the year to February 2014. However, approval rates have slowed since then with the latest ABS data revealing a 5.6% drop in approvals from March to April, following a 3.5% decline between February and March.
The increase in the number of construction sector businesses came as a result of growth in Victoria and Queensland, the Bankwest Report found.
There was a 9.8% increase in the number of workers running construction industry businesses in Victoria over the year.
“Victoria is a much sought-after place to live, with trends showing that more Australians are moving into the state every year. That has huge implications for development which has helped deliver significant growth in the construction industry,” said Bankwest executive general manager of business banking Sinead Taylor.
In Queensland, 49,600 people ran their own construction industry business in February 2014, up 1.5% compared with the same time in 2013. This was still 23.5% lower than five years ago.
The establishment of 1200 new construction businesses in the year to February 2014, did little to make up for the 21,250 drop in the number of construction sector businesses over the previous year.
While the construction industry still accounts for the largest number of business owners around the country, with 23.9% of workers who run their own businesses engaged in that sector, numbers are down by 12.4% over the past five years and 2.8% over the past decade.
The number of construction industry business owners in Western Australia fell by 4% in the year to February 2014. In NSW, there were 2.8% fewer business owners in the sector, while in South Australia there was a 1.4% decline in construction sector businesses.
More young people established construction sector businesses in the year to February 2014 with an additional 2,280 workers aged 15-24 running their own construction businesses. That represented an increase of 18.1% compared with the year before.
Across all sectors, 1,160,300 people ran their own business in February 2014, either as an own account worker or an employer. That was down by 6% compared with five years earlier, the Bankwest Report showed.
Bring it on! Having more stock on the market in what is a bubble of epic proportions will drop housing prices even quicker!
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
The number of people running businesses in the construction industry rose slightly in the year to February 2014, following a dramatic drop in the previous year?
New housing starts PROJECTED to rise?
Sorry but I don't see anything here but less bad news. Spin is all it is in reality.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
The Housing Industry Association (HIA) says the home-building recovery has brought activity to its highest level in 20 years based on recent Australian Bureau of Statistics data.
With home starts topping 180,000, Shane Garrick, chief economist at HIA, has welcomed the result.
“Back in early 2012 when activity was so low, the prospect of breaking through 180,000 starts within a couple of years was beyond almost everybody’s most optimistic expectations.”
Despite the record outcome, Garrick says it’s disappointing the same sort of figures didn’t translate across all housing construction.
“The multi-unit dwelling segment saw a sharp fall during the second quarter of this year, with detached house building also nudging down a little.
“On the renovation side, the volume of work done also fell, with a three per cent reduction in activity during the June 2014 quarter.”
HIA analysis indicated new housing starts will need to reach around 186,000 annually between now and 2050 to meet requirements.
“Even in such a strong upturn, we are still short of this requirement today,” Garrick says.
“This is a stark illustration of the serious supply-side issues which will need addressing.”
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy