Australia | Jul 10 2007
By Chris Shaw
Australian housing finance for May rose just 0.1% and while the outcome was lower than the market consensus of a 0.5% increase in the view of economists it was a solid result given it follows five months of strong increases.
The trend of gains in overall housing finance is expected to continue in coming months, Westpac senior economist Andrew Hanlan suggesting the outlook is being supported by an undersupply of housing stock.
Sadly this is not helping the first-home buyer, who is increasingly being priced out of the property market. The data supports this conclusion, Commonwealth Bank economist Joseph Capurso noting first-home lending only accounted for about 17% of total finance for the period, down from a longer-term average of 21%.
TD Securities global strategist Stephen Koukoulas agrees as he notes conditions with respect to monetary policy are not restrictive given households are still willing to increase the amount of housing finance they have in place.
Koukoulas expects finance approvals to grow further in FY08 thanks in large part to demographics, as immigration levels have picked up and the birth rate is as high as it has been for some time.
Capurso expects this will flow through into a pick up in housing construction, as while the sector has been going sideways for some months as interest has centred on the existing housing market the pent-up demand being created by the current demographic conditions will eventually correct itself.
Westpac’s Hanlan agrees, adding the current strong labour market conditions should also be a positive in terms of generating increased demand for new dwellings. ANZ Bank senior economist Ange Montalti takes a similar view, pointing out the increase in rents in recent months and the impact of recent tax cuts and reduced fears of further interest rate increases should give the market a boost.
Koukoulas doesn’t agree there should be a reduced fear of interest rates moving higher, arguing a further acceleration in finance approvals in FY08 is likely to create additional price pressures in the building sector.
This means it remains a case of when the Reserve Bank of Australia will move to increase interest rates and not if they will act. He cautions the longer the RBA waits before taking action, the stronger the action that will be required.
