Aussies switch housing preferences

Building approvals; Job ads; Consumer confidence; Home sales

• Dwelling approvals: Approvals by local councils to build new homes rose by 0.4 per cent in August after falling 1.2 per cent in July and soaring by 11.1 per cent in June. In trend terms, approvals rose for the seventh straight month, up by 1.1 per cent.
• Townhouses favoured: In the year to August over 15 per cent of new homes approved were semi-detached homes like townhouses – the highest proportion in 20 years.
• Job advertisements: Job advertisements fell for the first time in seven months but were just down less than 0.1 per cent in September to 180,700 ads. Job ads were at 6-year highs in August. Job ads are up 12.5 per cent on a year ago.
• Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.6 per cent last week to 113.4 after falling 0.6 per cent in the previous week. Confidence is down 3.8 per cent over the year but above the average of 113.2 since 2014 and above the long-term average of 112.9.
•  New home sales: In seasonally-adjusted terms, new home sales rose by 9.1 per cent in August after falling a (revised) 15.4 per cent in July. Sales are below 5-year average levels.

What does it all mean?

• Bad news for the doomsayers – approvals to build new homes are still rising, in fact at 7-month highs in trend terms. Housing supply is continuing to adjust to rising population growth, and that means more houses and apartments are being built. Activity is easing off record highs, but clearly a flat trajectory is being traversed.
• Demand for semi-detached homes may be providing the construction sector with a second wind. Aussies are wary of the maintenance of a big house but they want a bit of backyard and some independence. Solution? Semi-detached homes like townhouses and terrace homes. Semi-detached homes now account for 15 per cent of approvals – the highest share in 20 years.
• The job market remains in great shape. Job ads are a smidgen off 6-year highs, while in trend terms ads are growing at the fastest annual pace in seven years. The latest data supports recent job vacancies figures from the Bureau of Statistics which hit record highs in August. More people in jobs, and more people happy with job security means more spending.
• Aussie consumers are neither super-optimistic nor super-pessimistic. Conditions are just OK. Certainly Aussie confidence is sensitive to a lower currency and the Aussie dollar has softened over the past fortnight directly in line with consumer confidence. Consumers will buy if the price is right – confidence is not having a great bearing on purchasing decisions.

What do the figures show?

Building Approvals

• Dwelling approvals rose by 0.4 per cent in August after falling 1.2 per cent in July and soaring by 11.1 per cent in June. In trend terms, approvals rose for the seventh straight month, up by 1.1 per cent.
• Over the past year 213,601 new homes were approved, down 12.0 per cent from the record high 242,625 in the year to August 2016.
• House approvals fell by 1.1 per cent in August from 14-month highs – only the first fall in five months. Meanwhile ‘lumpy’ apartment approvals rose by 2.3 per cent after falling by 3.3 per cent in July. Apartment approvals have moved in a dramatic zig-zag fashion for the past seven months.
• Dwelling approvals across states/territories in August: NSW (-9.6 per cent); Victoria (-0.5 per cent); Queensland (+13.2 per cent); South Australia (+3.8 per cent); Western Australia (-7.4 per cent); Tasmania (+27.3 per cent). Trend terms: Northern Territory (+8.3 per cent); ACT (+8.9 per cent).
• The value of all commercial and residential building approvals fell by 5.0 per cent in August – the second consecutive fall in five months. Residential approvals rose by 2.2 per cent with new building up by 2.8 per cent while alterations & additions fell 2.7 per cent after falling 5.8 per cent in July. Commercial building fell by 15.7 per cent in August – the biggest fall in 10 months.

Job advertisements

• Job advertisements fell for the first time in seven months but were just down less than 0.1 per cent in September to 180,700 ads. Job ads were at 6-year highs in August. Job ads are up 12.5 per cent on a year ago

Consumer sentiment

• The weekly ANZ/Roy Morgan consumer confidence rating fell by 0.6 per cent last week to 113.4 after falling 0.6 per cent in the previous week. Confidence is down 3.8 per cent over the year but above the average of 113.2 since 2014 and above the long-term average of 112.9.
• Three of the five components of the index fell in the latest week; two were up:
  • The estimate of family finances compared with a year ago was down from +8 to +6;
  • The estimate of family finances over the next year was down from +25 to +23;
  • Economic conditions over the next 12 months was up from -1 to +2;
  • Economic conditions over the next 5 years was up from +4 to +6;
  • The measure of whether it was a good time to buy a major household item was down from +35 to +31.

New home sales

• In seasonally-adjusted terms, new home sales rose by 9.1 per cent in August after falling a (revised) 15.4 per cent in July. The number of private detached house sales rose by 7.3 per cent while multi-unit dwelling sales rose by 21.6 per cent.
• The Housing Industry Association reported: ““Results in July and August have been affected by government interventions in NSW and Victoria which have seen first home-buyers returning to the new home market.
• “Victoria has seen record numbers of new building approvals and new home sales are continuing to drive even higher. Strong population growth and employment growth, fortified with enhanced first home buyer incentives, is prolonging the boom in building activity.”
• For the three months to August compared with the same period last year, house sales in Victoria are 15.7 per cent higher and up by 9.2 per cent in South Australia. Over the same period, sales declined in Queensland (-7.3 per cent), WA (-15.4 per cent), NSW (-17.4 per cent) and Queensland (-37.9 per cent).

What is the importance of the economic data?

• The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.
• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
• The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 14 per cent of the home building industry.

What are the implications for interest rates and investors?

• The latest data remains encouraging. Approvals to build new homes are rising and job ads are still perched near the highest levels recorded in six years.
• Activity outside NSW and Victoria continues to improve. Queensland dwelling approvals are well above the decade average and moving higher.
• The Reserve Bank has no reason to cut rates. But still there is no justification to lift rates with wage and price pressures contained.