Australia: Dwelling approvals decline to act as a drag on growth – Westpac

Matthew Hassan, analyst at Westpac, points out that Australia’s dwelling approvals were much weaker than expected in Oct, recording an 8.1% pull back from September's 7.2% gain.

Key Quotes

“The Consensus had been looking for a milder 1% fall. The fall takes total monthly approvals back near their July cycle low, down 23.6%yr.”

“The detail was particularly disappointing – rather than a high-rise driven result, weakness in the month was more evenly spread across all dwelling types, detached houses down 11%, mid-low rise unit approvals down an estimated 4.7% and high rise approvals down an estimated 14%.”

“The renewed weakness in non high rise segments is despite tentative signs of stabilisation in recent months and firmer reads on construction-related finance approvals. These segments are also expected to be more responsive to recent interest rate cuts and the pick up in house prices.”

“Overall the Oct dwelling approvals report highlights the weak outlook for new dwelling construction. High rise segments look susceptible to further declines and non high rise is still softening despite rate cuts and the improved tone to markets since mid year.”

“Falling dwelling investment is set to be a continued drag through 2020 – we expect new dwelling investment to be down 11.5% for the full calendar year 2019 and is forecast to fall a further 8% in 2020. The weakness stands in stark contrast to the rebound coming through in prices but reflects the long lags on high rise projects and the specific issues facing this particular segment that are likely to preclude a rebound in high rise activity.”

“Price gains are also expected to moderate as we head into 2020 as supply starts to lift and as affordability strains re-emerge.”