Summary: Home approval numbers up 20.6% in May, much larger than expected; 9.8% lower than May 2022; Westpac: 150% spike in NSW apartment approvals; ANZ: expect limited further upside; house approvals up 0.3%, apartments up 59.3%; non-residential approvals up 6.8% in dollar terms, residential alterations up 4.3%.
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 May which show total residential approvals jumped by 20.6% on a seasonally-adjusted basis. The rise was much larger than the 4.0% increase which had been generally expected and in contrast with April’s 6.8% fall after revisions. Total approvals fell by 9.8% on an annual basis, up from the previous month’s figure of -18.7%. Monthly growth rates are often volatile.
“The May gain is largely due to a huge 150% spike in apartment developments in New South Wales,” said Westpac senior economist Matthew Hassan. “The bottom line is that, once we strip out what is very likely volatile high rise ‘noise’, the underlying picture is much more subdued, pointing to, at best, approvals flattening out at weak levels through April/May.”
The figures came out on the same day as several other reports and Commonwealth Government bond yields fell noticeably. By the close of business, 3-year and 10-year ACGB yields had both decreased by 6bps to 3.93% and 3.96% respectively while the 20-year yield finished 8bps lower at 4.22%.
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 4.135% in July and then to 4.275% in August. February 2024 contracts implied a 4.505% average cash rate while May 2024 contracts implied 4.45%, 38bps more than the current rate.
ANZ senior economist Adelaide Timbrell largely agreed with her Westpac counterpart regarding the outlook for approvals. “We expect limited further upside in building approvals in the shorter term given developer funding constraints and still-elevated backlogs.”
Approvals for new houses increased by 0.3% over the month, a turnaround from April 2.8% rise. On a 12-month basis, house approvals were 15.6% lower than they were in May 2022, up from April’s comparable figure of -16.9%.
Apartment approval figures are usually a lot more volatile and May’s total rose by 59.3% after a 13.6% fall in April. The 12-month growth rate rose from April’s revised rate of -22.0% to -1.7%.
Non-residential approvals increased by 6.8% in dollar terms over the month and were 19.1% higher on an annual basis. Figures in this segment also tend to be rather volatile.
Residential alteration approvals increased by 4.3% in dollar terms over the month and were 4.5% higher than in May 2022.
