The problems in the Australian housing market pale into insignificance beside the woes of credit markets in the wake of Lehman Brothers bankruptcy, but they do tell us something about the Australian economy.
Yes, housing, especially new homes, are depressed with a low level of starts, especially in NSW.
But unlike the US where new home starts are 30% or so under what they were a year ago, our home building industry isn’t on its knees, despite what you might read from time to time.
There is some life, not much, but its still there. And that tells us a lot about the slow, but solid health of the economy.
The Australian Bureau of Statistics said that 38,348 homes were started in the three months to June, a seasonally-adjusted drop of 3.7% on the March quarter.
That was the lowest quarterly figure in a year, but given the sharp rise in the cost of money over that time and the drop in consumer confidence, it was an understandable outcome.
It gives an annual rate of just over 153,000 new homes a year, 20,000 under what’s really needed.
But in a tiny bit of encouragement was that new private home starts were up 4.1% quarter on quarter and other private new dwellings (home units etc) fell a very sharp 17% in the June quarter, compared to March.
And, compared to the June quarter of 2007, there was a 2.1% rise in total new dwelling starts and a 5.4% rise in new private home starts. Other new private dwellings were down 3.7% in the June quarter, compared with the June 2007 quarter.
So while activity has been quiet and well below the capacity of the industry (as the Housing industry Association has been pointing out), our industry hasn’t down and out like the debt and loss-riddled US and UK sectors.
Westpac yesterday cut its fixed mortgage rates for new and existing customers, a sign that funding pressures continued to fall, but also an attempt to position it as being ahead of the rate cut curve.
The new rates apply from today, but until it or other banks cut the extra margin of half a per cent or more built into its variable rates, there will be no reason to boast.
Variable rates are by far the most popular form of mortgage and it would take a real upsurge in demand for housing loans to see some rate cutting competition emerge, but that in turn would horrify the RBA and prompt a rethink on interest rates.
Remember the RBA is worried about inflation and has long regarded the housing sector as a good indicator of consumer and economic expectations; and inflationary pressures, particularly on building material costs and wages.
The ABS said that seasonally adjusted estimate for the total number of dwelling units commenced fell 3.7% in the June quarter which follows a revised fall of 1.0% in the March quarter; the seasonally adjusted estimate for new private sector house commencements rose 4.1% in the June quarter following a revised fall of 5.3% in the March quarter.
(That’s quite a turnaround and is a stark contrast to the unremitting gloom from the US and UK).
The weakness has tended to be, if anything in the “new private sector other residential building" part of the industry, to use the descriptor of the ABS. Essentially its apartments and units, much of it driven by investor demand and activity.
The home unit and residential sector in places like the Gold and Sunshine Coats, parts of inner Sydney and Melbourne (Docklands) has cooled.
So much so that Raptis, the big Gold Coast home unit developer is in trouble, looking to raise hundreds of millions of dollars of new money in the next month to remain alive.
It has up to $700 million of new properties and projects it could sell, if buyers appear. That’s not very likely given the tough financial climate at the moment.
If anything the downturn in commercial building finance has affected this part of the industry, rather than new private building which tends to be financed by private individual mortgages.
Seasonally adjusted, the estimate for new private sector other residential building fell 17.1% in the June quarter following a revised increase of 9.5% in the March quarter.
The housing figures provided the backdrop to the release yesterday of the Federal Government’s five-year $512 million housing affordability fund at a residential development in suburban Canberra.
In a bit of PR spin, Mr Rudd said the fund would bring down the cost of houses and new developments by up to $20,000 by reducing infrastructure charges and speeding up planning approvals.
So perhaps that might be better applied to NSW where the problems seem to be concentrated. Despite being the biggest state, the biggest population and the largest home building sector, NSW is now not even outbuilding Queensland, let alone Victoria.
According to the ABS figures around 6,990 houses were started in NSW in the June quarter, against 9,850 in Victoria and more than 10,700 in Queensland.
No wonder the recent national accounts showed NSW contracted in the June quarter: the housing performance played a big part in that grim news.
