Oz approvals slump to seven-year low

Building approvals plummeted to their lowest result since March 2001 as earlier higher interest rates stop investors from buying property, economists say...

Australian building approvals fell 12.8 per cent to 9581 units in November, seasonally adjusted, from an upwardly revised 10,983 units in October, the Australian Bureau of Statistics said.

It was the lowest number of building approvals since March 2001.

RBC Capital Market Senior Economist Su-Lin Ong said the private sector component was still feeling the effects of 12-year high interest rates before the central bank began their aggressive easing in September.

The Reserve Bank of Australia (RBA) lowered the overnight cash rate in November by 75 basis points to 5.25 per cent.

This followed two cuts, in September and October, for a total 200 basis points, in a bid by the RBA to lift a flagging domestic economy.

"The key private sector housing component, which is about three-quarters of the total, was down nearly 10 per cent,'' Ms Ong said.

"What the November data really reflects is the higher interest rates earlier in the year, and that still is flowing through the market.''

In the year to November, building approvals fell 34.7 per cent.

The market forecast was for building approvals to record a fall of 1.5 per cent.

Private house dwelling approvals fell 9.7 per cent in October while the "other'' category, which includes multi-unit developments, fell a massive 21.9 per cent.

Ms Ong said there was little surprise the data was weak, given its leading indicator of finance approvals has been poor recently.

"Building approvals look like they are down to their lowest level since early 2001, during that period of slowdown,'' she said.

"No large surprises given the key lead, housing finance, has been down for about eight months.

"There is nothing to suggest a bottoming in housing.

All the measures from the central bank and the federal Government to give a boost to the housing market would take time to filter through, Ms Ong said.

In mid-October, the Federal Government doubled the first homeowners grant to £6,500 for an existing home and up to £9,700 for a new dwelling.

"It is clearly a bit too soon for rate cuts to be working their magic,'' Ms Ong said.

Nab Capital Senior Economist Spiros Papadopoulos said tighter monetary policy earlier in 2008 continued to hamper demand for housing.

"Building approvals crashed again in November, falling by 12.8 per cent after the 3.1 per cent fall in October,'' he said.

"Total approvals have fallen 35 per cent in the past year, in response to high interest rates through the year and declining house prices in most regions.''

Mr Papadopoulos said the aggressive cuts to the cash rate by the RBA, three per cent lower at 4.25 per cent, and the increase in the federal Government's first home owners scheme were still to flow through the housing market.

"The aggressive interest rate cuts by the RBA in late 2008 will take some time to improve confidence and increase activity in the housing sector, meaning there will be little improvement in supply in the first half of 2009,'' Mr Papadopoulos said.

"The Government's enhanced first home-owners grant will support approvals among owner occupiers.

"But investor demand will remain weak for some time, until there is a better outlook for house prices.''

Source: Herald Sun