Housing Recovery? Yes, but only modest at this stage
|By Development Finance Partners / Matthew Royal|
This blog post will take you into a world of housing market changes caused by the most recent interest rate change. Do we see housing recovery?
The RBA dropped the cash rate to 2.75% in May 2013. This compares with the cash rates of the 1950’s and 1960’s.
The fact that cash rates are this low highlights the sluggishness of the Australian economy now that the mining boom has passed its peak. The lowering of interest rates is also a contributing factor to the falling Australian dollar.
Falling interest rates typically spark activity in the housing sector. Mortgage numbers rose by 1.8% in May. In April there were 48,736 mortgage approvals. In May the figure increased to 49,636. The amount of housing finance rose by 2.0% in May to $23.4 billion according to the ABS.
The total value of all home loans is now 14 per cent higher than the same period one year ago and the number of new loans for the construction and purchase of new homes is now 18.1 per cent higher than in May 2012.
Westpac senior economist Matthew Hassan said the figures showed the Housing Sector was in the early stages of a recovery however based on the historically low rates, the rate of recovery was slower than in previous low rate periods.
“Given the degree of stimulus that we’ve seen, particularly from interest rate cuts, you might expect a stronger recovery at this stage, so in a sense, it’s still a little bit disappointing. Given where interest rates are and the requirements for non-mining sectors to pick up the slack from the mining downturn, there’s quite a high hurdle here for maintaining growth,” Mr Hassan said.
Savills Property Group head of research Tony Crabb said the upswing was the beginning of a housing recovery that would unfold over the next 12 months. “It should give us confidence of better business conditions over the next two years as this data takes 12 to 24 months to filter through to the rest of the economy,” he said.
Other experts said the monthly improvements were “modest” given record low interest rates, and the sector’s important role in filling the hole left by declining mining investment.
The latest HIA-RP Data Residential Land Report provided by the Housing Industry Association, is signalling only modest improvements in new home building activity in 2013.
“From a very low base in 2011, residential land sales have displayed only modest upward momentum, a trend reinforced by the 4.3 per cent increase observable for the March 2013 quarter,” said HIA Chief Economist, Harley Dale. “The March quarter update signals we are moving in the right direction, but as a key leading indicator land sales suggest the magnitude of a first stage new home building recovery will fall short of what the economy requires.”
“At this juncture, any clear improving trends are limited to New South Wales and Western Australia,” said Harley Dale.
According to RP Data’s research director Tim Lawless, land sales are broadly starting to head in the right direction however, affordability constraints, particularly in capital city markets may limit the extent of the recovery. “The consecutive quarterly increases in land sales are certainly encouraging, albeit the rate of growth has slowed from 11.9 per cent in the December 2012 quarter to 4.3 per cent in the March 2013 quarter. With the increase in sales, there has also been a lift in land values, ongoing increases in the value of land may restrict the extent of the recovery given the already restrictive land prices in certain regions, in particular capital city markets.”
“The increase in land sales is in line with the improving trend in sales across the detached house and unit markets throughout the second half of 2012 and early 2013. Lower interest rates are clearly encouraging broadly improving housing market conditions and hopefully this recent momentum can continue, especially with first home buyer incentives now being directed specifically at new construction across a number of states.”
In the March 2013 quarter the weighted median residential land value in Australia increased by 2.5 per cent to $198,152. This value was 2.4 per cent higher when compared to the same period in 2012. The median value for capital cities increased by 3.2 per cent in the March 2013 quarter to $225,781, 2.9 per cent higher than in the March 2012 quarter. The median value for Regional Australia was $155,807 in the March 2013 quarter. This represents a quarterly increase of 0.7 per cent and a 1.3 per cent increase compared with the same period in 2012.
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