By Chris Zappone
Building approvals dived 17.3 per cent in July from the previous month, the latest sign of weakness in the housing market.
Approvals, a gauge of future activity in the housing sector, fell at triple the 5 per cent pace tipped by economists. The drop was the biggest in at least six years, according to Bloomberg data.
July was not a good month for building approvals.Credit: Rob Homer
Approvals were also 10.6 per cent lower than a year earlier, the Australian Bureau of Statistics reported. Economists had expected approvals to by 6 per cent up.
“Clearly the residential construction side remains pretty soft to say the least,” said Commonwealth Bank chief economist Michael Blythe.
The residential real estate market has sent mixed signals in recent months, with interest rate cuts from the central bank helping to buoy home prices in June and July. However, new home sales fell in July and surveys of building activity conditions remain grim.
Separately, new private capital expenditure rose 3.4 per cent for the quarter in seasonally adjusted terms, more than the 3 per cent pace expected by economists in a Bloomberg poll.
The dollar touched a new low for the day of $US1.0318 after the release of the ABS figures. Stocks also added to their drop, sinking to a loss of about 1 per cent for the day in recent trading.
Flats flattened
The overall dive in housing approvals was entirely triggered by a drop of 40.5 per cent in permits for multi-unit developments. House approvals rose 1.6 per cent in July, reversing the 1 per cent fall in June.
"The decline is large but it normalises the longer term trend which has been soft but not disastrous," said JP Morgan economist Tom Kennedy.
"In the June data, we only had a small decline (in multi-units)," Mr Kennedy said. "So I think today's result was more a normalisation."
"If you look at today's data, all the weakness was concentrated in high-density developments," he said.
State by state
The decline in approvals was broad-based, with Victoria reporting the sharpest retreat.
Building approvals plunged 29.4 per cent in Victoria, on a seasonally adjusted basis, and 9.4 per cent in New South Wales.
In Queensland, they tumbled 19.7 per cent, while posting a 4.8 per cent drop in Western Australia.
In Tasmania they fell 4.5 per cent and in South Australia they fell 1.4 per cent, the ABS said.
'Negative' mindset
Despite the 1.6 per cent rise in private sector house approvals contained in the July data, housing activity overall remained weak by historical standards.
St George chief economist Hans Kunnen blamed “the negative sentiment pervading the mindset of Australia at present" for the spate of weaker housing data in recent months.
“Lending rates are below average but people see the news out of Europe and US but they don’t see the other side – job creation in other areas and low unemployment,” he said.
“It’s the all-pervading paralysis that people aren’t prepared to commit,” said Mr Kunnen. “Debt reduction is the mindset.”
“It will break. Once we’ve stopped our savings splurge, people will finally realise they still have jobs and they need to move out of home and there will be a turnaround,” he said.
“Lower interest rates, higher rents, growing population sooner or later do create activity.”
Weak numbers
Today's building approval numbers add to other weak readings for the sector this week. New home sales plunged to their second-lowest level in 11 years in July, ending three months of gains.
The Housing Industry Association new home sales report showed a 5.6 per cent fall to 5682 homes for the month.
June quarter residential construction also shrank 2.4 per cent from the previous three months. From a year earlier, the decline was 7.9 per cent.
More to come
BusinessDay