by Craig James
Victoria & Western Australia dominate the list of strongest home building regions in Australia.
Building boom ahead; Job market improves
Dwelling approvals retreat: Dwelling approvals fell by 5.0 per cent in February after lifting by 6.9 per cent in January. Approvals are up 23.2 per cent over the year. In trend terms, approvals rose to a record high of 17,073 in February.
The all-important reading on private sector house approvals fell by 2.1 per cent in February after soaring by 8.4 per cent in January to a near four-year high. ‘Lumpy’ apartment approvals fell by 7.7 per cent in February after rising by 4.7 per cent in January.
Commercial building up also: In real terms, commercial building approvals rose by 16.4 per cent in the December quarter to near four-year highs.
Improving job market: The number of job vacancies rose by 2.6 per cent in the three months to February – the first gain in 18 months.
The housing data has implications for banks, builders, developers and building material companies. The job vacancies data is important for retailers and consumer-focussed sectors. The engineering data is important for the industrial sector.
What does it all mean?
· No doubt investors and policymakers prefer smoother, more predictable trends in approvals to build new homes. But in practice it doesn’t work like that. Apartment approvals are typically ‘lumpy’ while the workflow at local councils varies across the country leading to monthly volatility in approvals.
· But in trend terms, approvals to build new homes are at record highs. Work on these new homes will get underway in the next few months, adding to an already full work schedule for builders. Clearly there is a building boom underway. Local council approvals to build new homes are up over 20 per cent on a year ago and up a similar amount compared with the decade average.
· The increase in approvals to build new homes and apartments will have multiplier effects across the country starting with developers and builders and ending with home appliance retailers and landscape gardeners.
· There are further signs that unemployment is reaching a peak. Job vacancies have lifted, adding to previous data showing a lift in newspaper advertisements and internet listings as well as growth in new company start-ups. A lift in new jobs and improvement in job security will underpin consumer spending, home purchases and building.
What do the figures show?
· Dwelling approvals fell by 5.0 per cent in February after a 6.9 per cent rise in January. Approvals are up 23.2 per cent over the year.
· The current number of dwelling approvals (16,669) is well above the decade average (13,489) and five-year average (13,859).
· House approvals fell by 2.8 per cent in February after an 8.7 per cent rise in January (private sector down 2.1 per cent). Meanwhile ‘lumpy’ apartment approvals fell by 7.7 per cent in February after rising by 4.7 per cent in January.
· House approvals are up 15.8 per cent over the past year while apartments are up 36.4 per cent.
· Across states in February: NSW approvals fell by 5.8 per cent; Victoria rose 1.9 per cent; Queensland fell by 15.6 per cent; South Australia fell by 14.8 per cent; Western Australia rose 4.6 per cent; Tasmania rose 0.6 per cent. In trend terms, Northern Territory approvals fell by 20.8 per cent while ACT approvals rose by 7.9 per cent.
· The value of all commercial and residential building approvals fell by 0.3 per cent in February after falling by 3.7 per cent in January. Residential approvals fell by 0.2 per cent with new building down 0.4 per cent while alterations & additions were up 2.0 per cent to a 12-month high. Commercial building fell by 0.5 per cent after falling by 6.4 per cent in January.
· According to the Bureau of Statistics job vacancies rose by 2.6 per cent in the three months to February – the first gain in 18 months.
· In unadjusted terms in the February quarter, vacancies across Australia were: NSW (up by 10.7 per cent), Victoria (down 17.3 per cent); Queensland (down 2.7 per cent); South Australia (up 11.9 per cent); Western Australia (up 10.5 per cent); Tasmania (unchanged); Northern Territory (up 23.5 per cent); and ACT (up 15.4 per cent).
· New data shows that the value of engineering work yet to be done by the private sector stood at $116.4 billion at the end of December, down from a record $169.2 billion in September 2012 but still above the decade average of $70 billion.
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 Bureau of Statistics’ Job Vacancies publication is released every three months and provides a perspective on the strength of the job market, especially hiring by businesses.
What are the implications for interest rates and investors?
· It is becoming increasingly less likely that the Reserve Bank will need to cut interest rates again to spur economic activity. But it is still too early to talk of rate hikes. We think that rates won’t rise until the end of the year at the earliest. Much will depend on the April 23 inflation data.
· Sometimes it pays to look at the big picture, and that’s the case with the work yet to be done in the engineering sector. While well off the boil, the amount of work to be done still dwarfs anything seen up to 2010.
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