Australia: Dwelling approvals dip – Westpac

Matthew Hassan, Senior Economist a Westpac, noes ha Australia’s dwelling approvals dipped 1.7% in July, the pull-back from June’s 11.7% jump much milder than expected (market forecast was –5%, Westpac –4%).

Key Quotes

“Approvals are down 13.9% vs their high a year ago but over recent months have shown signs of stabilisation for high rise and firming across non high rise segments.”

“The detail showed a flat month for private detached house approvals, the segment holding in a firm uptrend. Private unit approvals declined 6.7% but were coming off a 21% jump in June, the July read still 13% above the May level. The more granular detail points to a further small rise in high rise approvals (about 4%) which had been a big driver of the June gain (up about 15%mth). 'Low rise' or medium density dwelling approvals showed a more material reversal (down about 9% vs a 22% rise in June).”

“Combined, non-high rise approvals look to have pulled back about 3% from an 8.7% gain in June. This is broadly consistent with construction-related finance approvals which have shown a clear firming in recent months.”

“The value of renovation approvals declined 5.3% in July but was coming off a solid gain through May-June with a firm uptrend still intact (running at +1.8%mth, +5.1%yr).”

“The value of non-residential building approvals rose 2.4% in July but was also coming off a sold run in previous months with trend growth now a robust 3.1%mth, 14%yr. The lift is being driven by a surge in private sector office approvals which hit a new post-GFC monthly high in July. Recent gains in this segment have been spread across both NSW and Vic.”

“While a high-rise driven slowdown in dwelling activity remains assured near term, there are two key questions heading into 2018: 1) whether high rise takes another leg lower; and 2) whether the upturn apparent in non-high rise segments in recent months continues. The risks to the first question look stacked to the downside particularly in the wake of the recent moves by Chinese authorities to curtail offshore investment by Chinese businesses. The second question remains more open – our prior is that a slowdown in the wider housing market and weak buyer sentiment will eventually see the recent rally fade. However, there are some positives relating to state government approval policies and perhaps some buyer and developer preference for lower density projects.”