What does it all mean?

• After a few glimmers of light, the housing construction market is back in the doldrums. Newly-erected homes aren’t selling, reducing the requirement for builders to start work on new projects. The Reserve Bank Governor has expressed surprise about the lack of home construction, but there still aren’t signs of an upturn.
• Census data shows that the number of people occupying our large homes is rising. If the trend to greater housing utilisation continues, residential construction companies and tradespeople will continue to do it tough.What do the figures show?
• According to a survey of Australia’s largest volume builders, the Housing Industry Association reports that new home sales fell by 5.6 per cent in July. While only the first decline in four months, the decline wiped out all the gains over the period. It was also the second lowest monthly total of new homes sales in 11 years, behind the March 2012 result.
• Detached house sales fell by 5.5 per cent while multi-unit sales fell by 6.4 per cent.
• New home sales in July were 11.8 per cent lower than a year ago and have fallen at a double-digit annual rate for the past eight months.
• The HIA note: “In July 2012 the number of seasonally adjusted new detached house sales fell by 6.0 per cent in New South Wales, 4.6 per cent in Victoria, 8.9 per cent in South Australia, and 14.4 per cent in Western Australia. Queensland bucked the trend with a rise of 11.1 per cent in July.”

What is the importance of the economic data?

• 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 13 per cent of the home building industry.What are the implications for interest rates and investors?
• Interest rate cuts remain on the agenda. The question is whether it will take more rate cuts to spur housing demand and construction or whether federal, state and territory governments need to take greater action in inducing lenders to lend and developers to start new projects.

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• Australian dwelling starts fell by 5.3 per cent in the December quarter. The side in dwelling starts was due to weakness in activity in both the private and public sector.
• Private sector commencements were weaker by 4.1 per cent in the quarter with house starts down 8.0 per cent and apartment starts up 4.2 per cent.
• In 2010, 168,285 dwellings were started, up 10.6 per cent on the decade average and up 8.5 per cent on the 5-year average.
• In the December quarter, starts fell in all but one of the eight states and territories. Starts are at record highs in the ACT – a stunning 83.3pct higher than decade averages. The main risk is that the ACT market will experience indigestion later this year.

What does it all mean?

• It’s clear that towards the end of 2010 housing activity dropped off, with dwelling commencement sliding by over 18 per cent in the second half of the year. However the slide in activity levels comes after a serious ramp up in building. In fact when you look at the whole year almost a 170,000 dwelling were started up 10.6 per cent on the decade average.
• Interestingly in the December quarter, starts fell in all but one of the eight states and territories However only Queensland has dwelling commencements that are below 5-year or decade averages. And only NSW has dwelling commencements below decade averages so suggestions of substantial under-building in Australia are wide of the mark.
• At present the increased supply of homes in the market, together with the softening of demand in response to higher interest rates is leading to more balanced conditions and more sustainable growth of home prices. CommSec expects Australian home prices to grow by 5 per cent over 2011.
• Looking forward it is likely that activity in the housing sector will continue to moderate. The rate hikes have robbed the housing sector of momentum, and with construction loans at two year lows it is unlikely that new building will be buoyant in the near term.

What do the figures show?

Dwelling commencements

• The number of dwelling commencements fell by 5.3 per cent in the December quarter after sliding by 13 per cent in the September quarter. Private sector commencements were weaker by 4.1 per cent in the quarter with house starts down 8.0per cent and apartment starts up 4.2 per cent.
• In the December quarter, starts fell in all but one of the eight states and territories. Leading the gains was the ACT (up 75.0 per cent). Starts fell most in the Northern Territory (down 37.3 per cent), followed by Victoria (down 15.9 per cent), Tasmania (down 14.4 per cent), South Australia (down 14.1 per cent) and Queensland (down 5.9 per cent), NSW (down 2.1 per cent), and Western Australia (down 0.6 per cent).
• Starts are at record highs in the ACT – a stunning 83.3pct higher than decade averages. The main risk is that the ACT market will experience indigestion later this year.
• In 2010, 168,285 dwellings were started, up 10.6 per cent on the decade average and up 8.5 per cent on the 5-year average.

What is the importance of the economic data?

• The ABS figures on dwelling commencements are compiled on the basis of returns collected from builders and other individuals and organisations engaged in building activity. The data is useful in highlighting activity levels in residential construction.

What are the implications for interest rates and investors?

• The longer term fundamental for property look attractive. The Reserve Bank is unlikely to embark on significant rate hikes, population growth remains strong, and rental vacancy rates continue to fall. The tightness in the labour market is also likely to drive up skilled migration over the coming year adding to the demand for homes.
• It is looking likely that the Reserve Bank will remain on the interest rate sidelines over the next couple of months. Confidence is clearly paramount to the recovery cementing itself. Even the economic data has been patchy in recent times, while the impact of the natural disasters both domestically and globally is still filtering through the economy.

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