Summary: Home approval numbers fall 6.7% in June; slightly worse than expected figure; approvals still at very high level; more HomeBuilder-related declines to come; house approvals down, apartment approvals up; very low interest rates, strong investor demand keeping approvals elevated
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 the early months of 2020 painted a picture of a recovery taking place, even as late as April of that year. Subsequent months’ figures then trended sharply upwards.
The Australian Bureau of Statistics has released the latest figures from June and total residential approvals fell by 6.7% on a seasonally-adjusted basis. The drop over the month was greater than the 4.5% fall which had been generally expected but smaller than May’s 7.6% fall after revisions. Total approvals increased by 58.9% on an annual basis, a deceleration from the previous month’s revised figure of 53.6%. Monthly growth rates are often volatile.
“Note that despite these falls, total dwelling approvals are still at a very high level, up nearly 50% and 16.7% above their pre-pandemic peak. While there are almost certainly more HomeBuilder-related declines to come, activity is coming from a strong starting point,” said Westpac senior economist Matthew Hassan.
The figures were released on the same day as June’s home finance approval numbers and the RBA Board’s August meeting. Longer-term Commonwealth bond yields fell on the day, largely in line with overnight movements in US Treasury markets. By the close of business, the 10-year ACGB yield had shed 3bps to 1.15% and the 20-year yield had lost 2bps to 1.79%. The 3-year yield ticked up 1bp to 0.29%.
Approvals for new houses decreased by 11.6% over the month after falling by 10.3% in May after revisions. On a 12-month basis, house approvals were 43.3% higher than they were in June 2020, down from May’s comparable figure of 54.6%.
Apartment approval figures are usually a lot more volatile and they rose by 3.8% after falling by 1.4% in May. The 12-month growth figure increased from May’s revised rate of 51.6% to 60.1% as the effects of large falls in mid-2020 continued to affect annual calculations.
“Building approvals continue to moderate from the roll-off of Homebuilder but very low interest rates and strong investor demand are keeping approvals elevated compared with the years leading up to the pandemic. Unit approvals in particular are benefiting from investor demand,” said ANZ economist Adelaide Timbrell.
Non-residential approvals fell by 3.0% in dollar terms over the month but rose by 19.4% on an annual basis. Figures in this segment also tend to be rather volatile.
Residential alteration approvals increased by 2.0% in dollar terms over the month and were 36.3% higher than in June 2020.
