Summary: Home approval numbers down 7.7% in June, in line with expectations; 18.0% lower than June 2022; Westpac: dwelling approvals tracking a flattening underlying trend at weak levels; house approvals down 0.8%, apartments down 16.2%; non-residential approvals up 7.6% in dollar terms, residential alterations down 0.3%.
Building approvals for dwellings, that is apartments and houses, headed south after 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 and 2022.
The Australian Bureau of Statistics has released the latest figures from June which show total residential approvals fell by 7.7% on a seasonally-adjusted basis. The result was essentially in line with the 8.0% drop which had been generally expected but it also contrasted with May’s 20.5% rise after revisions. Total approvals fell by 18.0% on an annual basis, down from the previous month’s figure of -9.8%. Monthly growth rates are often volatile.
“The June update provides further confirmation of dwelling approvals tracking a flattening underlying trend at weak levels, albeit complicated by high-rise volatility,” said Westpac economist Ryan Wells.
The figures came out on the same day as the latest home finance approval figures and the August RBA Board meeting. Commonwealth Government bond yields fell noticeably and, by the close of business, the 3-year ACGB yield had shed 12bps to 3.74% while 10-year and 20-year yields both finished 9bps lower at 3.97% and 4.27% respectively.
In the cash futures market, expectations regarding further rate rises softened. At the end of the day, contracts implied the cash rate would rise from the current rate of 4.07% to average 4.105% in September and then to 4.145% in October. February 2024 contracts implied a 4.22% average cash rate and May 2024 contracts implied 4.195%, around 12bps more than the current rate.
Approvals for new houses slipped by 0.8% over the month, a turnaround from May’s 0.2% rise. On a 12-month basis, house approvals were 16.9% lower than they were in June 2022, down from May’s comparable figure of -15.2%.
Apartment approval figures are usually a lot more volatile and June’s total fell by 16.2% after a 60.1% jump in May. The 12-month growth rate fell from May’s revised rate of -2.4% to -19.6%.
Non-residential approvals increased by 7.6% in dollar terms over the month and were 46.6% higher on an annual basis. Figures in this segment also tend to be rather volatile.
Residential alteration approvals declined by 0.3% in dollar terms over the month but were 1.7% higher than in June 2022.
