14 JANUARY 2011

Home Approvals Slump But Renovation In Vogue

Figures that are used to measure new home building approvals slumped at the end of 2010. The most recent figures released for November 2010 show approvals to build new homes slumped by 4.2% - the all important new house segment was down by 2.0% and apartment approvals also fell by 2.0%.

This marks the seventh decline in the past eight months. Over the past eight months approvals have fallen by 23% whilst the figures are down by 9.9% on levels of a year ago.  However, the value of alterations and additions rose to record highs as a growing number of people elect to renovate rather than move.

The rate hikes have certainly taken their toll on the housing sector over the past year and unfortunately for the sector it is unlikely that a turnaround is going to take place anytime soon, especially given the double whammy rate hike in November is yet to make its mark on the figures. While approvals to build new homes may be sliding, one area that has picked up pace is the renovation market. The value of alterations and additions rose to a record high of almost $560 million in November - whether it is higher home prices or the cost of building or development that is driving the increase, people seem to be electing to renovate rather than move.

Interestingly when you look across the states Victoria continues to outshine the rest. In annual terms approvals in Victoria are still up 4.9% on a year ago, compared with the likes of NSW, Queensland, South Australia and Tasmania which have recorded double digit losses. The strength in construction activity in Victoria has provided a healthy degree of support for the state economy over the past year.

It is important to highlight that while the housing sector is cooling it is not about to collapse in a heap. The fundamental for property remain reasonable - population growth remains healthy, vacancy rates continue to slide and the employment growth will support activity in the mid to longer term. A period of interest rate stability would clearly help the situation. If the Reserve Bank stayed on the interest rate sidelines over the next couple of months, activity levels should improve.

Overall we expect expects house prices to consolidate over the next few months, but for the year as a whole we would expect prices to be relatively flat.

James Malliaros

Financial Planner

Authorised Representative No. 291633

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