Latest data from the ABS has revealed a 5 per cent decline in dwelling approvals in April, with two financial services providers also predicting further softening in the Australian housing market.
Dwelling approvals dropped by 5 per cent in April to 18,701 in seasonally adjusted terms, according to the latest data from the Australian Bureau of Statistics (ABS).
The ABS has said that the decline was driven by an 11.5 per cent fall in private sector dwellings (excluding houses) to 10,446. Private sector house approvals, however, rose by 0.1 per cent to 8,083.
The value of total building approvals also dropped, falling by 4.2 per cent in April. The value of residential building fell by 4.3 per cent, while the value of non-residential building fell by 4.0 per cent.
In trend terms, the figures were only down by around 1 per cent, with approvals down by 0.1 per cent (however, private sector housing was up by 0.9 per cent) and values down by 1.1 per cent in trend terms.
Commenting on the ABS figures, financial services firm UBS claimed that a “sharp retractment” in foreign investment approved by the Foreign Investment Review Board (FIRB) may have begun impacting trends in dwelling approvals and activity.
However, UBS noted that residential dwelling approvals are still well supported by population growth, but it stated that it expects housing activity to continue easing.
“Overall residential approvals are still trending around 230,000 and remain well supported by booming population of 1.6 per cent [year-on-year] as migration surged [by approximately 250,000],” UBS analysts noted.
“While we still expect housing activity to continue to ease ahead, approvals are still holding up at a higher pace than we previously expected, with our recent housing deep dive upgrading our forecast for commencements by 10,000 to 210,000 in 2018 and 195,000 in 2019.
“However, we have downgraded our house price outlook to fall 5 per cent over the next year, below our prior long-held view of 0 to 3 per cent year-on-year.”
Senior economist at AMP Capital Diana Mousina also said that she expects house price softening, particularly in Sydney and Melbourne, spurred on by an oversupply in apartment dwellings.
“A significant chunk of this new home construction has been in apartments, and there are some parts of the Sydney and Melbourne housing markets which will suffer from being ‘oversupplied’ over the near term,” the senior economist said.
“We still expect Sydney and Melbourne property prices to fall by another 5 per cent or so this year, with further declines likely next year.
“In Perth and Darwin, home prices look close to the bottom, and price growth is likely to be moderate in Adelaide and Canberra, but it may pick up a bit in Brisbane as population growth remains solid in the state. The home price boom in Hobart still has further to go.”
The AMP Capital economist claimed that softening housing market conditions would put downward pressure on household wealth.
“Over the past few years, the strong gains in home prices have allowed households to draw down on savings, which has been positive for consumption,” Ms Mousina said.
“But looking ahead, the savings ratio (currently at 2.7 per cent) is unlikely to move significantly lower, which is a constraint for consumer spending. A weakening consumer is a large downside risk for the Australian economy.”
Moreover, both UBS and AMP Capital claimed that the Reserve Bank of Australia would refrain from lifting the cash rate until at least the second half of 2019, with AMP holding to its view that rates would remain on hold until 2020.
“We remain of the view that the soft economic backdrop means that interest rate hikes from the Reserve Bank are still some time away and we expect the first rate hike to occur in 2020,” Ms Mousina said.