Australia: Dwelling approvals kick up again - Westpac

Matthew Hassan, Research Analyst at Westpac, notes that Australia’s January dwelling approvals report came in well above expectations with a 17% jump vs market forecasts of a 5% rise.

Key Quotes

“Approvals have been extremely volatile over the last few months, reflecting big swings in ‘high rise’ approvals which spiked in Nov (we estimate +60%), fell back in Dec (–47%) and have now seen another steep jump in Jan (+35%).”

“Note that the Jan jump has likely been ‘exaggerated’ by seasonal factors. The Jan month low period means seasonal adjustment is effectively a 20% mark-up on the unadjusted monthly growth rate. This means regular monthly noise can be significantly amplified.”

“The state detail shows high rise approvals were up strongly in NSW, Vic and Qld although the headline move was dominated by the much larger NSW and Vic segments. Assessing trends in the erratic high rise segment remains difficult. As noted previously, site purchases in 2016-17 point to approvals in this segment taking a further leg lower over the course of 2017-18.”

“Approvals outside of high rise were more mixed. Private detached house approvals declined 1.1% but were very uneven across states, rising strongly in Vic but falling sharply in Qld. For ‘mid rise’ dwellings, approvals were up about 15%.”

“On a combined basis, total approvals ex high rise were up 2.9%mth nationally and 7.2%yr. That is broadly consistent with recent signals from construction-related finance approvals. Going forward, we expect this growth pulse to give way to some softening as the wider market slowdown impacts. States continue to diverge significantly on this ex high rise measure with clear strengthening evident in Vic, steady approvals in NSW and WA but a material weakening in Qld.”

“The value of renovation approvals was steady in the Jan month but continued to strengthen in trend terms running at a double digit trend growth rate. Gains are now coming across all states rather than just NSW and Vic.”

“The value of non-res building approvals dropped 20% in Jan. Monthly approvals can be extremely volatile and although they are trending lower the situation could turn around quickly. Office approvals look to be coming off recent highs but most other segments remained relatively elevated.”

“The Jan gain comes against the run of play with wider housing markets slowing over the course of 2017 – abruptly in the case of NSW – and site purchases pointing to high rise activity continuing to cool. Construction-related finance approvals have been giving a slightly firmer signal for non high rise approvals but weakening wider sentiment around housing is likely to weigh on activity in these segments.”

“While the monthly update adds to uncertainty we suspect it is more noise than signal and look to coming reports for more clarity.”