Construction/Housing Industry Report 13-02-2009

Cost web send me a report on the building/construction industry every week, always quite positive like this one.

Lets hope it works out, I guess in Victoria we will have an added impetus with the rebuilding of the bushfire ravaged central/eastern part of the state. I hope the two govenments, state & federal can do it well & without too much knee jerk legislation & beurocracy, so that the unfortunate victims of this great tragedy can get their lives as back to  normal as possible sooner rather than later.

 

Housing to lead the way out of the downturn

Friday, 13 February 2009

First home buyers are returning to the market. December finance data released this week shows that not only are people taking advantage of lower interest rates to build or upgrade but first home buyers are also returning to the market. The jump in first home buyers was dramatic with 14,154 loans, the highest number since 2001 and 23% up on the same period the previous year.

Of note was the 38% increase in

New South Wales

where housing has been in the doldrums for several years, with a severe and growing discrepancy between housing demand and supply. After languishing for most of 2008 the trend for first home buyer loans is clearly up.

Also dramatic is the pickup in number of loans for new dwelling construction. With the exception of

Queensland

, the other states saw a pickup in number of loans for new dwelling construction between November and December. Over the next few months we would hope to see this trend continuing and reflected in increased building approvals.

The start of a recovery in home lending to first home buyers is easy to explain. With interest rates falling and generous First Home Owners Grants, the affordability equation has improved dramatically. With introductory variable home loan rates at close to 5% the gap between purchase affordability and rental affordability is closing fast.

The data also indicated average First Home Owners loan sizes of $230,000 in

South Australia

up to $280,000 in

Queensland

and

New South Wales

. Taking into account lenders requirements for deposits and the First Home Owners Grant it is clear that there is a developing market for low end housing product including medium density units, town houses and detached houses, suitable for first home owners.

Strengthening demand, more consistent pre-sales and improving feasibilities will be the prerequisites for obtaining bank finance for low end housing developments. However with easing construction costs, lower preliminaries, lower finance costs, and even easing consulting fees the outlook is improving dramatically.

The fear of unemployment is the main factor holding this low end housing demand back now. However so far the jobs data has been relatively benign. Unemployment rose from 4.5% to 4.8% during January. Much of this was caused by more people entering the workforce to seek work.

Interestingly there was actually an increase in full time jobs of 33,700 although part time jobs fell by 32,600.

Unemployment is widely expected to increase during 2009 and 2010 reaching 7% by mid 2010 according to the Treasury. We think that during 2009 fear of unemployment will settle down once businesses have reported their results and announced their plans for the next twelve months.

The forecast revival in the housing sector is in stark contrast to the outlook for commercial construction. As reported last week Treasury is expecting a 15% fall in business investment in 2009-2010. Much of this is likely to be in the construction and minerals sectors.

Of course there could be more shocks from the global economy. The downturn in

Japan

is worse than expected, and this will feed through to lower coal and mineral exports, as well as dragging the global economy down.

However in

Australia

a way forward is beginning to look clear.

As 2009 progresses expect to see a revival in new home construction and some buoyancy in the housing markets, particularly at the bottom end. Further interest rate decreases and the potential ending of the First Home Owners Grant will create some urgency.

High end property, waterfront investment units and luxury properties are unlikely to recover as quickly.

The stimulus package (should it ever get approved ) will help keep household consumption moving (although many will save the bonus) and the schools, public housing and insulation packages will keep sectors of the construction market moving.

Eventually the confidence embodied by the recovery in the housing market will feed though to other sectors of the economy. But that's still a long way off.

By Gary Emmett