Largely as expected, Australia’s dwelling approvals continued to soften in March. The month-on-month decline for the month was a large 18.5%, although approvals of free-standing houses declined a more modest 3.1%. Focussing attention on the annualised data sees total approvals still riding high at 214,604 year-ended March, some 7.0% higher than for the prior year.
Even that data can be misleading, because as months wear on, the annual approvals number will slide. Already, annual approvals are down fairly sharply from the peak in September 2021 of 232,142 dwellings for instance and as displayed in the following chart.
The chart shows total annual dwelling approvals on the green line and annual approvals of houses only on the red line. There is a similarity to the trend of course because houses dominate the total. The fact is however that over the year-ended March, at 138,293 approvals, houses have lifted a modest 3.0% over a year when total approvals were up 7.0%.
The chart and table below show the relative positions of each dwelling format, for the last three years.
Albeit with the spectre of interest rate rises looming over its shoulder, the March data was recorded before the demand dampening interest rate rise of early May, which is likely to have kicked off a cycle of interest rate increases.
Demand for new dwellings and property prices are both widely anticipated to fall immediately and to accelerate as further interest rate rises provide their near inevitable dampening effect. For a supply chain that has plenty of work – as the previous item on the pipeline of building work discusses – this is of no immediate concern and may prove to be of no consequence at all.
If there is an impact, it will take a year or more to wash through. How big could the impact be? Its hard to know, but measured in approvals, as Michael Bleby reported in the Australian Financial Review in early May, the view of JP Morgan economist Jack Stinson was:
“…with higher interest rates and lower dwelling prices would probably take month’s total approvals – which averaged almost 18,000 a month in the 12 months to March – to below 14,000, the average monthly figure for the three years from 2011-2013.”
If Stinson is correct, that would push dwelling approvals down to less than 170,000 per annum. If we factor in these two years of effectively zero population growth and lousy household formation rates, Stinson could be right and in addition, the drivers for lifting above that level could be two to three years away.
Hard to know where the cycle will bottom, but easier to anticipate that when reached, it will be a trough.
