Big bounce!

Australian building approvals surged in September while residential property prices recorded their first gains in five months

2 November 2020 | Marcus Reubenstein

Australian residential building approvals have surged by 15.4 percent in September, well above market consensus estimates of a rise of just 1.5 percent.

Analysts were caught by surprise with data coming out of Victoria which shows that state’s COVID-19 lockdown has not greatly impacted building approvals. Victorian approvals have risen over the past three months, but the strongest gains have been in the states least affect by coronavirus.

Total Queensland approvals rose 19.3 percent, South Australia was up 28.3 percent, WA 42.6 percent and Tasmania 18.8 percent. Victorian approvals rose 12.4 percent, with a total of 9,387 new dwellings approved.

New South Wales recorded the softest growth of just 4.6 percent with 5,906 dwellings approved.

COVID-19 hit pulling back

Diana Mousina, senior economist at AMP Capital noted, “The short-term impact of COVID-19 now appears to have passed—unless there is another surge in virus cases—and has been replaced with higher demand for new dwellings thanks to the Federal Government’s HomeBuilder program.

“New home sales have been soaring since the announcement and anecdotes suggest that take up has been quite high, especially in Perth apparently after years of a housing downturn.”

The value of total buildings approved fell 17. Percent in September, in seasonally adjusted terms. After rising 40.0% in August, the value of non-residential building fell 36.7 percent, its weakest level since January 2017.

The strength in approvals over recent months has been in detached houses which rose strongly in September by 11.1 percent. Non-detached homes, mainly units, sky-rocketed by 25 percent in September, a correction after months of weakness.

Overall, unit demand has been hit harder than houses in the pandemic. This trend has longer to play out as the greater ease of working from home encourages households to move further out from areas close to CBDs (for lifestyle and financial factors) and factors are already starting to play out in the home price data.

Home values stage a recovery

Following five months of consistent declines in residential property values, real estate data group, CoreLogic reports its national home value index has moved back into positive month-on-month growth through October, posting a 0.4% rise.  The lift in home values was broad based, with every capital city apart from Melbourne posting a rise in values over the month.

Over the month dwelling values increased by more than 1% in each of the smallest four capital cities with Brisbane, Adelaide, Hobart and Canberra housing values reaching new record highs.

Although values were lower across Melbourne through October, the trend rate of decline has been easing since mid-September.  With a drop of 0.2%, this was the smallest month on month drop in values since the COVID-19 related downturn commenced in April. 

Since the announcement that private home inspections were once again permitted across Melbourne, new property listings have surged, clearance rates have lifted and buyer activity is recovering. Based on this recent trend in housing values and activity, it seems likely we will see Melbourne follow the other capital cities towards a recovery over the coming month.

Problems for apartment market

According to CoreLogic’s Head of Research, Tim Lawless, the October results show early evidence of a divergence between house and unit market performance.  “The rise in capital city housing values over the month was entirely attributable to a 0.4% lift in house values which offset the 0.2% fall in unit values.  Through the COVID period so far, unit values have actually shown a smaller decline in values than houses, but this is likely to change.”

“Almost two thirds of Australian units are rented, and rental conditions have weakened, especially in the key inner-city precincts of Melbourne and Sydney.  These areas have a higher concentration of unit stock, and historic exposure to demand from overseas migration. Low levels of investment activity, relatively high supply of unit stock in inner-cities and international border closures are key factors that imply units will under-perform relative to houses over the medium term” he said.

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