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August, 2018 3:28 PM



Approvals signal a slowing housing sector

Approvals signal a slowing housing sector

A sharp fall in approvals for high density housing in April contributed to a sharper than expected fall in overall approvals.

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By AAP 30.05.2018 11:40 AM

A sharper than expected fall in approvals for the construction of new homes in April, and a slip in non-residential approvals, point to a potential decline in broader economic growth.

Dwelling approvals dropped five per cent in April, the Australian Bureau of Statistics said on Wednesday, compared to analyst forecasts of a three per cent decline.

Approvals were still up about two per cent annually, but are now far weaker than the double-digit increases seen in 2017.

A home building boom has supported the economy in the last four years, but slowing approvals suggest that is running out of steam, economists said.

AMP economist Diana Mousina expects house prices in Sydney and Melbourne to ease another five per cent or so this year, with further declines likely next year.

And that will have ramifications for the economy.

"Over the past few years, the strong gains in home prices have allowed households to draw down on savings, which has been positive for consumption," Ms Mousina said.

"But looking ahead, the savings ratio is unlikely to move significantly lower, which is a constraint for consumer spending.

"A weakening consumer is a large downside risk for the Australian economy."

Analysts at UBS downgraded their house price forecast on Wednesday, expecting values to drop by five per cent or more over the next year from their long-held view of flat to a three per cent fall.

The outlook means the Reserve Bank of Australia will likely keep rates at a record low of 1.5 per cent for a long time to come.

"We continue to expect the RBA will hold until at least the second half of next year, but given the downside risks to our housing and consumer outlook, the RBA could remain on hold for even longer," UBS chief economist George Tharenou said in a note.

"Separately, the surprisingly weaker trend in non-residential building approvals is important to highlight, as if it is sustained it could suggest momentum for business investment is rolling over."

Approvals for commercial properties such as offices slipped for a second straight month in April, down four per cent. They are down nearly 20 per cent in the last 12 months.

Non-residential building approvals have stumbled in nine of the past 12 months.

"The recent downturn in approvals is challenging our outlook for ongoing strength in non-residential activity into 2019," ANZ economists said.

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