Australia: Housing market clearly cooling, but construction indicators surprisingly resilient – NAB

Analysts at NAB explain that Australian housing market continued to cool in November, ahead of the usual pre-Christmas slow period as auction clearance rates have eased, but that has been largely driven by Sydney where the rate has dipped below 60% on average over recent weeks (having been closer to 80% early in the year) – implying a buyers’ market.

Key Quotes

“Melbourne clearance rates have eased, but not to the same extent, while auction volumes have held up.”

“These trends are clearly reflected in prices. Annual national dwelling price growth slowed to 5½% y/y in November, having peaked at 11.4% earlier this year. Momentum has turned negative in Sydney, although annual growth is still modestly positive (5%) – interestingly, unit prices have been doing better than house prices in recent months, which might be an indication that affordability is a major factor. Momentum is also easing in Brisbane and Adelaide, and while the trend has improved in Perth, prices are still down over the year. Prices in Melbourne meanwhile are holding up reasonably well, with growth only coming off slightly (rising 10.1% over they year to November).”

“The number of housing finance approvals (owner-occupier, ex refinancing) fell in October, but is still up 9% over the year. Meanwhile, investor finance approvals rose (up 1.6% m/m), but are still down more than 6% on last year.”

“Our outlook for prices is unchanged, but slightly weaker than expected prices in Sydney in recent months suggests some downside risk – our forecasts will be updated in the release of NAB’s Residential Property Survey later this month. Our national house price forecasts for 2017 are currently 4.7%, 3.4% in 2018 and 2.5% in 2019. Unit prices are forecast to rise 4.7% in 2017, 0.5% in 2018 and a slight decline (-0.3%) in 2019.”

“Dwelling investment was down again in the quarter, falling 1%, continuing the trend that has seen investment fall 2.3% over the year. While weak results in previous quarters were partly put down to disruptive weather, the fall in Q3 could suggest that the housing construction cycle has peaked even sooner than what most were expecting. That said, new house building rose this quarter and it was a decline in alterations & additions/renovations (-4.8% q/q), that drove the fall in the quarter.”

“Private residential building approvals increased 0.3% in October, and despite being down from their peaks, are now up over the year (4.2% in trend terms). The trend for both detached houses and units has ticked up recently, with the lift from NSW and Victoria. We still expect approvals to trend down from here, but a continuation of solid population growth could help sustain these levels.”

“Ongoing weakness has prompted us to revise our dwelling investment outlook slightly lower. It is now expected to be down in 2017, before falling another 2.2% in 2018 (previously +0.7%) and 2019 (previously -1.3%), albeit with limited impact on economic growth given its small share of GDP.”