Wednesday, 1 February 2012

Housing remains sick, sick, sick

Australians aren't building many houses, they are not buying many houses, house prices are sliding down a slippery slope and sentiment towards housing is unusually low.

Today's building approvals data capped off a run of quite gloomy news on housing, with the number of new approvals down 1.0% in December to be down 24.5% from the level of a year ago.

And if so few houses are being approved, new construction will inevitably weaken.  For the December quarter as a whole, house building approvals were down around 12% - not great for the building industry or employment in the early part of 2012.

While it is no bad thing house prices are off a touch as affordability slowly improves, it would be bad if there was another year of say 5% falls in nominal prices - bad for consumer wealth, bad for banks and bad for confidence.  Also, with demographic changes pointing to the need for more houses to be built, the current dismal level of new construction remains a worry.

The start of the interest rate cutting cycle in November 2011 will provide support to housing activity, but we must wait a few more months for this to show up in the hard data.  Clearly, the RBA did well to start cutting rates when it did although it might have been better if it started cutting either a bit earlier or a bit harder.  Not to worry, it will make up for this oversight with aggressive rate cuts in the months ahead.

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