Charting the construction recovery

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By Leith van Onselen

Yesterday’s new home sales release from the Housing Industry Association (HIA) provided more encouraging news, with new home sales rising for the fourth month in a row, albeit from highly depressed levels.

Following last month’s 1.6% increase, new home sales nationally rose by a further 3.4% in June, with detached house sales increasing by 7.3%, partly offset by a 17.5% decline in unit sales. Total new home sales are now in a mild uptrend, having risen by 27% since sales bottomed in September 2012, driven primarily by a surge in detached house sales (see next chart).

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While the recovery is promising, it needs to be kept in perspective, with annual new home sales tracking only marginally (3.3%) above the 16-year lows recorded in December 2012 (see next chart).

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Importantly, the employment-sensitive detached house segment looks to have bottomed everywhere except Queensland, although it remains weak overall (see next chart).

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First home buyer incentives introduced in New South Wales and Queensland in October 2012 have had mixed results. While new house sales are 70% higher than September in New South Wales, they have fallen by 16% in Queensland (see below charts).

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ScreenHunter_129 Aug. 02 07.58

Victoria is also an interesting case. While the First Home Buyers’ Grant on pre-existing dwellings did not expire until 30 June 2013, detached house sales have surged, which seems counter-intuitive (one would expect sales to surge after the changes took effect, rather than before). In any event, it augers well for the effects of the grant in Victoria:

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Finally, the below charts track new detached house sales, approvals, completions and commencements across Australia. The Data is presented on a 4 quarter moving-average (4QMA) basis to smooth volatility.

First, the below chart shows housing construction recovering across the mainland, albeit from a low base:

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New South Wales is clearly recovering from incredibly weak levels:

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Victoria has bottomed, but has a long way to go to return to its former glory:

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The construction outlook in Queensland is weak:

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House construction in Western Australia is strong:

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South Australia also looks to have bottomed from depressed levels:

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So overall, there’s some encouraging signs. But there’s a long way to go before home construction is out of the woods and acting as a meaningful replacement to the mining investment boom.

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Comments

  1. Australians everywhere should be very angry about what these stats show. We have a generation of FHB’s excluded from home ownership, a comatose construction sector and everyone who bought before the bubble strutting around saying ‘I’m alright, Jack’.

    This is not some ‘permanently high plateau’, this is an economic disaster in the making.

    The Great Australian Land Bubble will eventually burst and revert to mean. I shudder at the wealth destruction coming our way.

    Don’t Buy Now!

    • You’ve been singing the same tune for as long as I can remember… property crash blah-blah, economic disaster blah-blah… why do you bother?

      65% of the population who already own homes think you’re crazy and the other 35% either don’t care or have realised that nothing is ever going to change.

      Give Up Now!

      • I bother because the land market, land ownership and rent-seeking have very large consequences for all.

        Land is the biggest asset class, worth in Australia some $4 trillion. We are and remain a land-based economy. It is currently very expensive in relation to our earnings.

        Previous booms and the inevitable busts devastated those long and geared at the peak. My reading of the entrails tells me we have blown the biggest land bubble in our history. You may see it differently, but a market is made of many opinions. This is mine.

        Roughly a third own their homes, a third are buying with a mortgage and a third are landless. In a bust, it is the middle third who suffer. Don’t be one of them.

  2. 25bps cut in August (sure thing) + another 25bps cut in November (likely) + Rudd’s new First Home Builders Grant (coming soon) and the residential property construction sector will once again lead Australia back to economic prosperity.