Australian Building Approvals Rise Most in Four Years
Australian home-building approvals rose by the most in four years in June as government grants and the lowest borrowing costs in half a century stoked demand among first-time buyers.
The number of permits granted to build or renovate houses and apartments increased 9.3 percent from May, when they fell a revised 11 percent, the Bureau of Statistics said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for an 8 percent gain.
Central bank Governor Glenn Stevens will probably keep borrowing costs at a 49-year low of 3 percent next week for a fourth month to help stoke domestic demand, according to a Credit Suisse Group AG index based on swaps trading. The government in May extended grants to first-time buyers of newly built dwellings to A$21,000 ($17,200).
“The recovery in housing construction is still on track,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “It adds to the Reserve Bank’s view that we’ve certainly skirted a recession and that growth will accelerate.”
The Australian dollar traded at 81.89 U.S. cents at 12:07 p.m. in Sydney from 81.74 cents before the report was released. The two-year government bond yield rose 2 basis points, or 0.02 percentage point, to 4.29 percent.
Building approvals fell 14.3 percent in June from a year earlier, today’s report showed. Economists tipped an 18.2 percent drop.
Economy Rebounding
The economy may rebound faster than the bank forecast six months ago as consumer and business confidence surges, Stevens said in a speech in Sydney on July 28.
It appears “that the downturn we are having may turn out not to be one of the more serious ones of the post War era,” he said.
Signs of a rebound in the economy, which unexpectedly grew 0.4 percent in the first quarter after shrinking 0 16 pt business cards.6 percent in the previous three months, may prompt the central bank to revise its forecast for gross domestic product on Aug. 7. In May, the bank predicted GDP would contract 1 percent this year before expanding 2 percent in 2010.
Demand for new dwellings may strengthen in coming months after home-loan approvals rose in May for an eighth month. A report published yesterday by Australian Property Monitors showed house prices jumped 3.3 percent in the June quarter.
Interest Rates
Governor Stevens, who cut borrowing costs by a record 4.25 percentage points between September and April, has kept the overnight cash rate target unchanged at 3 percent since April.
Investors have a 4 percent expectation Reserve Bank policy makers will reduce the rate when they meet on Aug. 4, according to the Credit Suisse index at 11:55 a.m. in Sydney.
Households with an average mortgage of A$250,000 are paying A$7,000 a year less than they were at the start of September 2008, which is equal to about 8 percent of family incomes, according to Reserve Bank calculations.
Stevens said this week that Australia faces the challenge of ensuring “the ready availability and low cost of housing finance” results in the construction of more houses, and “not just higher prices.”
“If all we end up with is higher prices and not many more dwellings — then it will be very disappointing, indeed quite disturbing,” and may increase the risk of “problems of over- leverage and asset-price deflation down the track,” Stevens said.
Approvals to build private houses rose 4.9 percent to 8,385 in June, today’s report showed. Approvals for apartments and renovations advanced 27.7 percent to 2,156.
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