Estimating Sheets


Building approvals data confirm weakness

The number of residential approvals fell in February by 7.8 per cent to its lowest level since May 2009 / File

ANOTHER month has gone by with no sign of a recovery in the building industry.

The latest building approvals figures confirm that building, both housing and non-residential, is still on the sick list.

The number of residential approvals fell in February by 7.8 per cent to its lowest level since May 2009, according to the seasonally adjusted figures from the Australian Bureau of Statistics (ABS).

At the same time, the value of non-residential building dropped by 54 per cent.

That just about completely reversed a surge in January caused by one-off public hospital projects approved in Victoria and South Australia.

Overall, the value of approvals, both residential and non-residential, was 5.5 per cent lower in February than the already-depressed average for 2011.

The numbers are consistent with the estimate of new home sales from the Housing Industry Association (HIA) on Friday, which showed only a weak bounce in February after a 12-year low plumbed in January.

Other data today suggested homebuyers remain cautions.

Big mortgage broker Australian Finance Group (AFG) released data showing the proportion of loans it processed that specified a fixed interest rate rose to 25.4 per cent, up from a low of 6.6 per cent a year before and 2.5 per cent two years before.

In fact, the proportion of loans at fixed rate has only been above the February level once in the eight-year history of the AFG data series. That was in November 2007, when variable home loan rates had just hit an 11-year high.

Lending rates are not unusually high right now and there is a lot of public discussion about whether or not they will fall - rate rises are not commonly seen to be on the agenda.

Accordingly, the flight to the safety of fixed rates may be more a reaction to a more generalised anxiety than specific fear of interest rate hikes.

That anxiety may be related to the problems in Europe, widely publicised job losses in a number of industries blamed on the high exchange rate, or perhaps the coming carbon tax which seems to be generating fear well beyond any reasonably anticipated impact.

As well as the uncertainty demonstrated by the preference for fixed-rate mortgages, the housing industry faces a hostile housing market, with prices still high but no longer rising, an unappealing combination for prospective buyers.

The RP Data-Rismark measure of housing prices, updated with March data on Monday, showed housing prices were lower than a year earlier in each of the capital cities, down by 4.4 per cent on average among the capitals, and by 2.5 per cent on average in non-capital areas.

In the aftermath of the ABS approvals data, both the HIA and Master Builders Australia called for an interest rate cut when the board of the Reserve Bank of Australia (RBA) holds its monthly monetary policy meeting on Tuesday.

The sentiment was echoed by AFG's general manager of Sales and Operations, Mark Hewitt.

"The best thing the RBA could do to stimulate confidence among buyers and upgraders would be to cut interest rates tomorrow,'' he said.

Although a rate cut is possible, it seems more likely that the housing industry will be disappointed this month.

The RBA still apparently expects - albeit with less confidence than a year or so ago - the mining investment boom to make up for all the negatives ranged against the economy over the coming year or so.

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