Australia: Dwelling approvals holding up – Westpac

Australia’s dwelling approvals again surprised to the upside in Oct, posting a 0.9% rise against expectations of a 1% decline, notes Matthew Hassan, Senior Economist at Westpac.

Key Quotes

“The detail shows a very sharp rise in Vic approvals, up 24.3%mth, more than offset a significant fall across the rest of Australia (down 8.3%mth on a combined basis).”

“Annual growth in dwelling approvals nationally jumped to 18.4%yr but is exaggerated by weakness in the base period. On a rolling 3mth basis – which we now see as the 'benchmark' measure given the higher volatility associated with the increased share of unit approvals – approvals are up 4.1% over the last 3mths and down 0.9%yr.”

“The Vic gain in the Oct month was led by a jump in high rise approvals that likely reflects a lumpy project pipeline. Detached house approvals also posted a robust 6.8%mth gain with 'non high rise' approvals hitting a new record high in the state. Despite this the high rise spike is likely to unwind in coming months, raising the risk of a sharp correction lower.”

“Overall, private detached house approvals rose 1.5%mth nationally, the aforementioned rise in Vic and a solid 3.2% gain in Qld more than offsetting declines in NSW (–5.2%), SA (–3.7%) and WA (–1.9%). On a rolling 3mth basis, approvals nationally are up 1.8% over the last 3mths and 3.7%yr. The is broadly consistent with the firmer signal from construction-related finance approvals through the middle of the year, a pulse that now looks to be fading.”

“Total unit approvals were down 1%mth nationally, despite a spectacular 46% jump in Vic. Unit approvals fell sharply in in NSW (–10.1%mth) and WA (–18.3%mth) both reversing a jumps in Sep. Qld recorded a 12.5% rise from a low base. Our estimates suggest, on a 3mth rolling basis, high rise unit approvals are up 1% over the last 3mths, while the smaller 'low rise' segment continues to see considerably stronger gains (up over 20%yr).”

“The value of renovation approvals also rose strongly in the month, up 21%mth. The last 3mths has seen trend approvals growth lift to a 10% annualised pace. The last 6mths has seen a notable lift in the mining states where renovation activity has been essentially flat for the last 5yrs.”

“The value of non res building approvals fell 10% in Oct, partially retracing a 19% jump in Sep. The choppy monthly profile conceals a rising trend although the pace looks to be slowing and gains may even be flattening out entirely. The detail shows recent strength has been concentrated in Vic and to a lesser extent NSW. Offices have been the main driver but warehouse approvals have also seen solid gains and other segments remain at firm levels compared to previous years.”

“We continue to expect approvals to move lower in the months ahead with the spike in Vic high rise this month raising the risk of a sharp fall at some stage. The firming in Vic non high rise approvals may be better sustained but momentum looks weak elsewhere.”