Summary: Home approval numbers fall; again, better than expected; house approvals up, apartment approvals down; non-residential approvals down for the third month running.
Approvals for dwellings, that is apartments and houses, had been heading south since mid-2018. As an indicator of investor confidence, falling approvals had presented a worrying signal, not just for the building sector but for the overall economy. However, approval figures from late-2019 and even from recent months have painted a picture of a recovery taking place despite forecasts of a coming slowdown.
The Australian Bureau of Statistics has released the latest figures from April and total residential approvals decreased by 1.80% on a seasonally-adjusted basis. The fall over the month was nowhere near as bad as the -11% which had been generally expected and it was a smaller fall than March’s 2.6% decline. Total approvals still increased by 5.7% on an annual basis, an improvement from March’s comparable figure of +1.9% after it was revised up from +0.2%.
“Overall, while dwelling approvals have again held up better than expected, they are giving a false sense of security,” said Westpac senior economist Matthew Hassan.
The report came out on the same day as the March quarter’s GDP figures and Commonwealth bond yields increased by more than their US Treasury counterparts had in overnight trading. By the end of the day, the 3-year Treasury bond yield had crept up 1bp to 0.28%, 3bps above the RBA’s target rate, while 10-year and 20-year yields had each gained 6bps to 0.95% and 1.61% respectively.
In the cash futures market, expectations of a rate cut hardened a little for contracts through to the end of 2020 but softened for months in 2021. By the end of the day, July contracts implied a rate cut down to zero as a 54% chance, unchanged from the previous day. August contracts implied a 48% chance of such a move in that month, also unchanged. December contracts implied a 42% chance, up from 40%. Prices of contracts during 2021 implied probabilities ranging between 33% and 42%.
Approvals for new houses increased by 3.0% over the month, up from March’s revised figure of -0.2%. On a 12-month basis, house approvals were 5.8% higher than they were in April 2019.