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Building Approval Fall Marks Peak Home Building Boom?

Posted: August 5th, 2014 | Author: | Filed under: Australian Home Prices, Real Estate News, Urban Planning | Tags: , , , , | Comments Off on Building Approval Fall Marks Peak Home Building Boom?

Building Approval Fall Marks Peak Home Building Boom?Official figures from the Australian Bureau of Statistics – ABS – on new home approvals have raised questions over whether the building boom is peaking. The ABS figures for June show 15,659 new dwellings were given local government go-ahead that month, down 5 per cent from the month before.

Despite the fall, which was more than twice what economists expected, dwelling approvals are still up by a massive 16 percent on the same time last year. The notoriously volatile apartment approvals figure, which is frequently skewed by large developments, fell 10.5 per cent in June, but still remains more than 23 per cent above last year’s level.

Detached house approvals fell a more modest 2.2 per cent at the start of winter, but are also up a more modest 13.1 per cent over the past year. The Housing Industry Association, which represents residential builders, says slow land release is likely to have capped the most recent construction boom.

Despite the downturn in new builds, home prices surged as the real estate market recovered from it’s autumn slump. Overall Australia’s home price boom shows little sign of slowing, with Sydney and Melbourne again driving price gains after a brief lull ::::

Building Approval Fall Marks Peak Home Building Boom?

Economic forecasters BIS Shrapnel say the ABS data shows building approvals hit a record high last financial year.

“The record financial year result of 193,186 dwelling approvals for 2013-14 surpasses the previous high of 188,341 recorded back in 1993-94. The result was a 21percent lift in approvals compared with 2012-13,” observed BIS Shrapnel associate director Kim Hawtrey. “Much of the strength is coming from the 31 percent lift in multi-residential approvals which came in at a national record total of 82,322 approvals in 2013-14. New South Wales (+38 percent) achieved 28,462 approvals – a new record – as did Victoria (+19 percent) with 23,552 approvals.”

Mr Hawtrey says it is the fourth year in a row that apartments and other multi-unit dwellings had increased their share of the housing mix, and now made up 43 per cent of new dwellings approved.

Citi’s economists Paul Brennan and Joshua Williamson say it looks like residential approvals have peaked, albeit around record levels.

“Looking through the monthly volatility, the underlying trend in dwelling approvals looks like it has peaked, but mainly for apartments,” they wrote in a note on the figures. “House approvals are still close to peak levels and likely to stay that way given that we expect interest rates to remain at exceptionally low levels until mid-next year.”

The notoriously volatile apartment approvals figure, which is frequently skewed by large developments, fell 10.5 per cent in June, but still remains more than 23 per cent above last year’s level.

Detached house approvals fell a more modest 2.2 per cent at the start of winter, but are also up a more modest 13.1 per cent over the past year.

The Housing Industry Association – HIA, which represents residential builders – says slow land release around urban infill sites is likely to have capped the most recent construction boom.

“New home approvals have recorded falls in seven of the past nine months,” HIA senior economist Shane Garrett observed. “It is thus likely that we have already reached the peak in the home building recovery and that activity is likely to stabilise over the coming year.”

JP Morgan’s Ben Jarman however is unsure that building approvals have peaked, citing strong growth in loans for the construction of new dwellings, combined with the fact that the May data was relatively strong.

“Building approvals were due some payback, and while the flow of new work appears to be leveling out, it is premature to be calling an end to the growth impulse from non-mining building work,” Mr Jarman says.

Even if building approvals have peaked, economists are agreed that the residential construction boom will still have some way to run before tailing off.

“Even with approvals having peaked, dwelling starts could still be expected to rise slightly further, potentially making this the biggest sustained housing construction upswing,” Citi’s economists said.

Even if building approvals are leveling off, there is certainly no sign of borrowing for real estate slowing down. Reserve Bank figures show overall borrowing last financial year grew at the fastest pace since February 2009.

Total lending grew at 5.1 percent, including 0.7 percent growth in the month of June compared to May.

Housing finance again dominated the growth, rising 0.6 percent in June and 6.4 percent over the past year, about two-and-a-half times annual wages growth.

Within that category, investors continued to dominate, with borrowing for housing investment up 0.9 percent in June and 8.7 percent over the 2014 financial year, the strongest annual growth since before the global financial crisis.

Personal credit also jumped 0.6 percent in June, but was only up 0.7 percent over the past financial year. There was a welcome 1 percent lift in business borrowing during June, but much of this was due to a bridging loan for a major corporate restructure. However, the 3.5 percent rise in business lending last financial year was the best result since September 2012.

Australia’s home price boom shows little sign of slowing, with Sydney and Melbourne again driving price gains after a brief lull in late autumn. The widely-watched RP Data-Rismark Home Value Index shows prices jumped 3.7 percent in Melbourne last month, with a 2.8 percent rise in Darwin, with strong gains also for Sydney and Canberra.

The more stable quarterly figures show Canberra defying public service austerity to post a 2.1 percent increase in prices, while Sydney recorded a 2 percent rise, Melbourne 1.8 percent.

The heat in Australia’s largest housing market is illustrated by Sydney’s median dwelling price of $650,000 sitting more than $100,000 above the next dearest capital, Melbourne. The gap between Australia’s two biggest markets and the rest of the country widened further in the three months to July 31, with Sydney 14.8 percent and Melbourne 11 percent, the only two markets posting double-digit annual gains.

All other markets were somewhat higher over the past year, with Brisbane’s 6.9 percent gain the best of the rest, but many cities saw prices go backwards in the past three months: Brisbane eased 0.4 percent; Perth 0.1 percent; Hobart 1.2 percent; and Adelaide dropped 2.6 per cent.

Adelaide was recently found to be the only city where homes were selling around fair value if interest rates were to rise back to more typical levels.

Home price gains losing momentum: RP Data’s research director Tim Lawless says the past six months have shown a slower pace of price appreciation than the peak of the boom in winter and spring last year, and he expects this moderation to continue.

Home prices in July Sydney: up 1.5 percent, median price $650,000. Melbourne: up 3.7 percent, median price $540,000. Brisbane: down 0.1 percent, median price $450,000. Adelaide: down 0.1 percent, median price $395,000. Perth: down 0.5 percent, median price $519,000. Hobart: down 0.6 per cent, median price $300,000. Canberra: up 1.5 per cent, median price $516,250. Darwin: up 2.8 percent, median price $515,000.

“With interest rates remaining low and fixed rates seeing further downwards pressure, we are expecting that capital gains will continue into the foreseeable future,” Mr Lawless said. “What is likely though is that the rate of capital gain will continue to reduce, particularly in those cities where affordability constraints are the most significant and rental yields are the lowest.”

Mr Lawless has repeated a recent warning from Reserve Bank governor Glenn Stevens that the Sydney market looks most likely to ease off.

“Low yielding market conditions in Sydney and Melbourne are likely to act as a disincentive to investors, as well as the fact that these markets are well advanced in their growth cycle,” he forecast. “Additionally, with affordability becoming a more pressing issue in Sydney we would expect buyers to be seeking out medium to high density dwellings located close to the city rather than where they could afford to buy a detached home.”

The RBA chief warned that growth had been coupled with a sharp increase in the use of debt by investors. The value of loan approvals for investors in NSW was now 130 percent higher than in 2008, he said, and lending to investors with deposits of less than 20 per cent had increased in recent months.

While mortgage credit growth overall remained “quite moderate”, Mr Stevens urged investors to be cautious and warned investors that they shouldn’t assume prices would always rise, singling out the Sydney market in his speech.

“The growth of credit outstanding for housing is about 6 per cent to 7 percent per annum, or slightly above trend nominal income growth. It’s hard to mount the soap box to complain about that pace,” Mr Stevens said. “Nonetheless, investors should take care in the Sydney market, which is the main area where a large increase in borrowing has been occurring.”

“People should not assume that prices always rise” when deciding to buy property, they don’t,  sometimes they fall”

Outside the capitals, house prices fell 0.7 percent in the three months to June 30, up a more modest 3.5 per cent over the last financial year.

Shares on the rise as property peaks?

The Australian share market hit a six-year high, rising solidly to close at a fresh six-year high, with the gains shared across all sectors.

After a subdued start both indices easily broke through the psychological barrier of 5,600 points. The All Ordinaries index closed 35 points higher or 0.6 percent at 5,615.

The ASX 200 gained 34 points to hit 5,623.

The major banks all contributed, with the Commonwealth Bank rising 1 percent to an all-time high of $83.13 a share. ANZ was the next best performer with a rise of 0.5 percent, while Westpac gained 0.25 percent, NAB 0.2 percent. QBE Insurance clawed back some of its earlier losses after an earnings downgrade, with its shares closing up nearly 4.5 percent.

The mining sector rose despite a fall of nearly a fifth of a percent for BHP Billiton and 0.4 percent for gold miner Newcrest. Rio Tinto gained 0.5 percent, Fortescue Metals Group 2.1 percent.

@mcsixtyfive

RELATED! RBA governor Glenn Stevens warns property investors to tread with caution

RBA governor Glenn Stevens warns property investors to tread with caution  Read more: http://www.smh.com.au/business/rba-governor-glenn-stevens-warns-property-investors-to-tread-with-caution-20140703-zsuv6.html#ixzz39Swg0Zz1Reserve Bank governor Glenn Stevens has sent property investors a blunt warning to “take care” in Sydney’s booming housing market, saying slower growth in house prices would be good for the economy.

In comments aimed squarely at people betting on future capital gains, Mr Stevens singled out Sydney on Thursday as he told investors they should not assume prices would always rise.

Sydney’s property market has led the country in the past year. Prices have risen 15.4 per cent in the year to June, latest figures from RP Data-Rismark show.

Despite the warning, Mr Stevens said the Reserve Bank did not think there was a case to raise interest rates to prevent the market from overheating.

Price growth has slowed in the latest quarter, and he said it would beneficial for the economy if the slowdown in prices persisted “for a while” :: Read the full Business Day article »»»»

PORKFOLIO

source: hia.pdf1.pdf2
source: linkedin
source: rp.data
source: rba
image source: fairfax/indeepmedia

About Michael

Michael’s time is spent making other folks land softly, easing their days, so they’re able to enjoy their evenings: He Likes To Worry!

Overtly fond of driven people, loves the energy, his client list is diverse, an English Brain Scientist, a Hotelier on the up, a PR firm and a half dozen special individuals. As well, he runs online campaigns for several brands, throws his fifty cents in for Unruly Media, takes on the odd guest editorial and lunches out in Melbourne every second day and can often be found walking The Tan, mumbling stories out loud.

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