Australia: Dwelling approvals report posted a solid bounce in November - Westpac

Analysts at Westpac note that the Australia’s November dwelling approvals report posted a solid bounce in the month but it was not enough to suggest that the correction to Australia’s high rise driven dwelling construction boom is over.

Key Quotes

“Approvals jumped 7.0% in the month with Octobers 12.6% drop revised to a 11.8% fall. The market was looking for a 4.5% lift and Westpac’s forecast was 5% gain. Our forecast was based on the view that the November update would clarify the speed of the high rise descent. As is often the case with monthly high rise approvals, the October pull-back was sudden and dramatic taking this segment down around –36.4% (revised from –40%) to the lowest number of high rise dwellings approved since September 2014.”

“We suspected that usual monthly survey noise was a factor in October (due to the large size of high rise projects this sector often sees monthly moves of ±20%) and as such were looking for a partial reversal in November. The 37.1% jump in the month was broadly in line with our expectations and the ABS is now reporting a trend decline of 10.7% through the last six months.”

“Other segments were mixed in November; detached house approvals fell 0.2% while low rise units lifted 6.5% in the month. For what is usually a much more stable component the ongoing decline in detached housing approvals is one to watch (–2.9%yr) as this segment should have seen more support from rate cuts.”

“The state data was a mixed report with approvals printing strong gains in NSW, Victoria and SA while approvals continue to fall in Qld. WA posted a very strong outside gain of more than 20% which we expect is due to monthly volatility of in the high rise segment.”

“The value of renovation approvals fell 7.8% in November but this followed a 13.7% jump in October to leave the total down 2.3% in the year. Trend estimates highlight that this sector is softening, flat prints for the last three months following three negative months, but the monthly volatility is making it difficult to pick the underlying conditions.”

“The value of non-residential building approvals fell a further 7.8% in November following a 1.9% decline in October.”

“Overall the November dwelling building approvals update was better than expected but it still suggests that the construction cycle is now turning down. Certainly there are enough projects at earlier stages of development still coming through to suggest high rise activity is not about to come to a dead stop any time soon.”

“The long lags on high rise projects mean the downturn in this segment will not impact construction activity until well into 2018 with work done set to be well supported in 2017. Indeed, Westpac’s current forecasts are based on a wind-down in high rise approvals broadly in line with the one shown today impacting activity in 2018. From our point of view, the main risk for 2017 is the degree to which other segments weaken.”