Summary: Home approval numbers up 9.9% in May, above expectations; down-trend still in place; house approvals down 2.4% by number, apartments up 35.1%; house approvals “particularly weak”, unit approvals trending sideways; non-residential approvals up 16.5% in dollar terms, residential alterations up 3.8%.
Building 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 before falling back in 2021.
The Australian Bureau of Statistics has released the latest figures from May and total residential approvals increased by 9.9% on a seasonally-adjusted basis. The rise over the month contrasted with the 2.0% decline which had been generally expected, as well as the 3.9% fall in April. Total approvals fell by 20.9% on an annual basis, slightly higher than the previous month’s revised figure of -26.42%. Monthly growth rates are often volatile.
“Although ongoing volatility makes trends harder to read, the underlying detail suggests the down-trend in dwelling approvals, as more firmly established in the April result, still remains in place,” said Westpac economist Ryan Wells.
The figures were released on the same day as several other domestic data reports and Commonwealth Government bond yields fell modestly. By the close of business, the 3-year ACGB yield had shed 4bps to 3.16%, the 10-year yield had lost 3bps to 3.62% while the 20-year yield finished 2bps lower at 3.84%.
In the cash futures market, expectations of higher rates eased a little. At the end of the day, contracts implied the cash rate would rise from the current rate of 0.81% to 1.185% in July and then increase to 1.655% by August. November contracts implied a 2.74% cash rate and May 2023 contracts implied 3.54%.
“Approvals are now down 30% from the peak, as activity brought forward by the HomeBuilder program unwinds,” noted ANZ senior economist Felicity Emmett. “House approvals are particularly weak and are likely to continue to trend lower. Unit approvals are trending sideways. While higher rates will be a headwind, rising immigration and a strong rental market may provide support for higher density approvals.”
Approvals for new houses fell by 2.4% over the month after falling by 0.5% in April. On a 12-month basis, house approvals were 29.2% lower than they were in May 2021, down from April’s comparable figure of -26.3%.
Apartment approval figures are usually a lot more volatile and May’s total jumped by 35.1% after a 10.3% fall in April. The 12-month growth figure improved from April’s revised rate of -26.4% to -4.2%.
Non-residential approvals increased by 16.5% in dollar terms over the month and by 6.3% on an annual basis. Figures in this segment also tend to be rather volatile.
Residential alteration approvals increased by 3.8% in dollar terms over the month and were 2.1% higher than in May 2021.
