Economic Watch - NAB 13 May 2013

The value of Housing Finance Approvals rose 4.5% in March, with owner-occupied
approvals up 5.8%. Investor approvals up 2.1%.


The cuts in interest rates in Q4 last year have boosted approvals in early 2013, and
are further evidence of the steady improvement in the housing sector.


Finance for new dwelling construction rose for the fourth consecutive month, led by
a 21% gain in finance for purchasing new homes.

 

The RBA on Friday acknowledged the increased appetite for borrowing and rising
house prices, with the key risk that prices may rise too fast. Last week’s rate cut
will further support housing demand, so if the uptrend in finance approvals
continues it will argue against another near-term interest rate cut.


Australia’s housing finance approvals (in value terms) rose by 4.5% in March, after the 1.5%
rise in February. Approvals have risen in six of the past eight months and the upward trend
continues, this month strongly supported by owner-occupied approvals which rose 5.8% in
March. Investor approvals rose 2.1%.


Both investor and owner-occupied approvals have risen in all three readings so far this year, a
clear sign that the interest rate cuts in October and December 2012 sent interest rates low
enough to boost demand. With house prices in all capital cities (except Hobart) now rising in
annual terms, last week’s RBA rate cut should further support housing activity.


The number of owner occupied approvals was also solid, up 5.2% in March (NAB and market
median forecast was +4%). But it seems that most of the demand for approvals is coming
existing home owners. First home buyer commitments were just 14.2% of total owner occupied
approvals, the lowest ratio in 9 years.


Once again there was encouraging news for new home financing. Finance for the purchase of
new dwellings rose a large 21% in March, and has been up in 7 of the past 8 months, while
construction finance rose for the fourth consecutive month, +4.6% in March. Adding new
dwelling and construction finance together (see chart below) provides some further optimism
that the residential construction sector will continue to improve.


Overall, today’s data provides further evidence that the housing sector is improving, with
owner-occupier demand very solid in Q1, and approvals not just reliant on investor demand.


After another cut in interest rates, amid rising house prices and consumer confidence, we
should continue to see gains in housing finance in coming months. The RBA on Friday
acknowledged the increased appetite for borrowing and rising house prices, with the key risk
that prices may rise too fast. Last week’s rate cut will further support housing demand, so if
the uptrend in finance approvals continues and we start to see rising household credit growth,
it will argue against another near-term interest rate cut.

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