Property on track for recovery

The Australian housing market is still on track for a modest recovery in 2006, although building approvals are likely to have taken a breather last month.

Economists expect Australian Bureau of Statistics (ABS) data will show a fall of 0.5 per cent in December, after a 3.4 per cent jump in November.

UBS senior economist Adam Donaldson is looking for a three per cent fall, primarily reflecting the recent decline in lending housing finance data.

"In the lending data, loans for construction has been quite weak in the last couple of months, which we find has a good relationship with building approvals," he said.

The most recent Australian Bureau of Statistics figures show the value of loans for owner occupiers to build their own homes fell by 2.7 per cent in the three months to November while loans to investors fell by 26 per cent.

Mr Donaldson said the housing sector is bottoming out, with stable interest rates providing some support.

"Stable interest rates has meant that housing affordability has started to pick up a bit as incomes grow and that is good news and over time that will lend more support to the market," he said.

Citigroup Global Markets senior economist Annette Beacher agreed but she warned the average consumer remained sensitive to interest rate speculation.

"As soon as there is speculation, concerns about a rise in interest rates, you get an immediate slump in consumer sentiment," she said.

Ms Beacher has forecast building approvals to be flat in December.

"We have seen quite choppy apartment data," she said.

"But a positive figure for detached houses, so the two cancel each other out reflecting our flat forecast."

Ms Beacher said housing growth should be reasonably steady going forward.

"We have had a gentle, soft landing in the housing cycle and we expect a turn around from here," she said.

Ms Beacher also expects approvals for private houses to remain upbeat and has forecast a one per cent rise after a 2.6 per cent jump in November.

Approvals in other dwellings, or apartments, are likely to have slipped by about four per cent after a rise of 5.2 per cent in November, said Ms Beacher.

Macquarie Bank researchers have forecast building approvals to fall by one per cent in December, with the risk skewed to a sharper than expected decline.

They also warn that after a solid rise in November, approvals remain at an insufficient level to satisfy underlying demand for dwellings.

ANZ Investment Bank economist Amber Rabinov has a more positive view and sees the housing market remaining buoyant in 2006.

"Demand has been outstripping supply and we expect a continued rise in construction," she said.

"But we are forecasting building approvals to take a breather in December, falling back one per cent, given November's strong result."

31st January 2006

Source: AAPT