Housing jump fuels rate riseArticle from: Font size: Decrease Increase Email article: Email Print article: Print Submit comment: Submit comment July 31, 2007 12:00am BUILDING approvals jumped in June due to a sharp rise in medium density housing, supporting expectations of an interest rate rise next week. Australian building approvals rose 7.5 per cent to 12,953 units in June, seasonally adjusted, from an upwardly revised 12,048 units in May, the Australian Bureau of Statistics said. Economists had expected a rise of two per cent in June. In the year to June, building approvals rose 0.9 per cent. Macquarie Bank senior economist Brian Redican said the housing sector was looking fairly stable at the moment. He said the headline building approvals rate was boosted by the volatile medium-density sector. Multi-unit dwelling approvals rose 22.1 per cent in June to 4016. "But even if we look at private new house approvals, which tend to be a better indicator of the underlying demand, there's a healthy increase in the month," he said. Private sector approvals rose 1.2 per cent in June to 8,589. "I think it does support this notion that we're in a consolidation phase for the overall housing market," Mr Redican said. "With the risk of higher interest rates, we don't think that there's going to be any building boom going on out there, but nor should housing be a significant drag on growth. HSBC chief economist for Australia and New Zealand John Edwards said the data was much stronger-than-expected. "Most of the increase was in the notoriously volatile multi-unit category, which rose 22.1 per cent," he noted. Of the total increase in approvals, the big gain was in Queensland, while NSW, South Australia and Western Australia fell. "Even so, the 1.2 per cent national in private house approvals for the month and the small gain in approvals overall, compared to last year, at least confirms that the housing downswing has levelled off." But Dr Edwards said demand pressures would continue to rise amid higher immigration and declining rental vacancies. "That's one reason we think a 25 basis point tightening from the Reserve Bank announced Wednesday next week is a pretty good bet," he added. CommSec senior analyst and economist Craig James said the data indicated the building industry remained "very flat", adding that a likely interest rate rise next week meant the hard times were set to continue. "Effectively building approvals have moved in a zig-zag fashion for over 12 months," Mr James said. "So really we have to look at the trend estimates to get some sort of idea of how the overall market is going, and what it shows is dwelling approvals remain very flat." The trend estimate for total dwelling approvals rose 0.3 per cent in June, following a revised increase of 0.1 per cent in May. However, in the year to June, the trend estimate for total dwelling approvals fell by 3.2 per cent. Mr James said the data showed the NSW building market remained depressed, amounting to a "real drag" on the overall total of building approvals. "In trend terms, NSW building approvals have hit their lowest levels in 24 years. "So we're still not seeing any great signs of recovery in the building market." Mr James said that with the expectation of a rate hike next week, difficult times look set to continue in the building industry. Westpac said that while the building approvals figures for June were much better than the disappointing May result, they still pointed to a subdued situation in terms of housing construction. "Approvals continue to run at just a touch of 150,000 per annum over the first six months of 2007, well behind the underlying physical demand for housing, estimated to be rising at around 172,500 a year," Westpac said. "With the dampening impact of last year's interest rate rises dropping out and substantial pent-up demand for housing starting to feed into broader market activity ... approvals have been primed for an upturn for some time. "Activity may be starting to gain traction but it is still coming through more slowly than expected." Source: Courier Mail

Aug 1, 2007