Drop in building constrution in November

BUILDING approvals dived 4.2 per cent in November in a reflection of the impact of interest rate rises.

Approvals fell 4.2 per cent to 13,158 units in November, seasonally adjusted, from an upwardly revised 13,728 units in October, the Australian Bureau of Statistics (ABS) said today. In the year to November, building approvals were down 9.9 per cent, evidence the interest rate rises by the RBA had their desired impact.

On November 2 – Melbourne Cup day – the Reserve Bank of Australia (RBA) raise the cash rate to 4.75 per cent from 4.5 per cent.  JP Morgan economist Helen Kevans said she had been expecting a modest rise for November.

She had expected the housing sector to have started to recover after the first-home buyers grant was scaled back early in 2010. “It looks like higher interest rates are really weighing on building activity (and) that weakness will probably continue.

“We’ll probably see another weak number for building approvals in December given the recent rainfall.  “So that suggests over the fourth quarter would see another significant drop following on from that fall in in the third quarter.”

Ms Kevans says the the housing sector may weaken further in  2011.  “With rates going higher in November and combined with all this rainfall, we’ll probably get off to a pretty weak start in 2011.

“So that suggests with building activity weak and the economy still facing a chronic shortage of housing supply we will see upward pressure on house prices.”  The figures reflected the Housing Industry Association-JELD-WEN statistics for the month released yesterday, which revealed sales eased 0.2 per cent for all dwellings compared with a 2.4 per cent surge in October.

Clearances of new detached homes fell 1.1 per cent, while apartment sales improved 8.1 per cent. “New home building activity looks set to decline across all states and territories in 2011,” HIA chief economist Harley Dale predicted yesterday.

He said the strained rental market would experience further tightening. “We don’t have sufficient rental stock to meet the demands of the domestic population, let alone cater for increased immigration,” he said.

Dr Dale told BusinessDaily small businesses in the housing construction sector would feel the most pain with the outlook unlikely to improve during the next 12 months. “The lack of demand for new homes, coupled with high borrowing costs and tight credit conditions, means small to medium-sized builders and the businesses that support them are facing challenging times that won’t be materially rectified in 2011.”

Commsec economist Savanth Sebastian said potential home buyers had a “valid reason to be more circumspect about future purchases” after successive rate increases last year, the scaling back of the first home buyer grant and property price rises.

“Interest rates are already restrictive and the Reserve Bank would be best staying on the interest rate sidelines in the near term,” Mr Sebastian said

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