AUD: March dwelling approvals stronger than expected - Westpac

Matthew Hassan, Senior Economist at Westpac, notes that the Australian March dwelling approvals report came in stronger than expected with a solid 3.7% rise in the month vs expectations of a 2% decline.

Key Quotes

“The detail showed a surprisingly strong bounce in ‘high rise’ approvals led the monthly gain.

Private sector house approval rose 2.6% after a 0.5% rise in Feb. Approvals in this segment continue to drift around, about flat on a year ago without showing a clear trend one way or another. That said, the state breakdown shows detached house approvals clearly trending lower in WA (–25%yr) with some signs of softening in NSW and Qld but a continued rise in Vic.

Total private unit approvals bounced 6.7% in March a 5.1% gain in Feb that reversed a 5.1% dip in Jan, the latter revised up from an 8.4% fall previously. Within the segment, we estimate ‘high rise’ approvals posted a strong 25-30% bounce but were still down about 20%yr. The monthly bounce was heavily concentrated in NSW and Qld but even in these states 'high rise' approvals are down on a year ago. The bounce in 'high rise' was partially offset by a 20% decline in ‘low-mid rise’ approvals, unwinding most of a sharp jump last month.

Overall, total approvals ex 'high rise' – arguably a more useful proxy for underlying trend activity – were down about 4%mth but appear to be still tracking a slight rising trend nationally. State measures point to a well entrenched downturn in WA, the start of a slowdown in NSW but continued positive momentum in Vic and Qld.

The value of renovation approvals and non-residential approvals were both down in March.

Looking at Q1 as a whole, dwelling approvals remained at a relatively high level (a 225k annualised pace) and suggest new building activity has further gains near term before an eventual slowing. Renovation approvals also point to a modest gain in Q1. However, non res approvals are suggesting there is some risk of a sharp pull back non residential building in coming quarters, from what is still quite an elevated level (note that there are important differences in coverage between approvals and investment as well as uncertainties around the timing and duration of projects).

Overall, the March update is better than expected – however we would read it as indicating a somewhat milder underlying slowdown rather than the start of a stabilisation in activity. Latest auction market and price data has also been a touch firmer. Both have shown more pronounced slowdowns than dwelling approvals though. More generally, construction can be slower to respond to shifts in broader housing market conditions.”