HomeBuilder scheme still unwinding as September home approvals decline

Summary: Home approval numbers fall 4.3% in September, slightly greater than expected decline; up 12.8% on annual basis; more softening coming, although “question mark” regarding units approvals remains; house approvals down 16.1%, aligns with continued unwinding of “HomeBuilder”; apartment approvals up 17.4%, likely to continue while investor lending strong; non-residential approvals down 11.3%, residential alterations down 20.0% over month.

Building approvals for dwellings, that is apartments and houses, had been heading south since mid-2018. As an indicator of investor confidence, falling approvals had presented a worrying signal, not just for the building sector but for the overall economy. However, approval figures from late-2019 and the early months of 2020 painted a picture of a recovery taking place, even as late as April of that year. Subsequent months’ figures then trended sharply upwards before easing somewhat in the June and September quarters of 2021.

The Australian Bureau of Statistics has released the latest figures from September and total residential approvals decreased by 4.3% on a seasonally-adjusted basis. The fall over the month was slightly greater than the 2.0% decline which had been generally expected and in contrast with August’s 7.6% rise. Total approvals increased by 12.8% on an annual basis, down substantially from the previous month’s revised figure of 32.5%. Monthly growth rates are often volatile.

“Overall, most of the detail in the September update aligns with our prior view that more softening is coming through, albeit with a bit of a question-mark around units,” said Westpac senior economist Matthew Hassan.

He noted August’s figures “suggested the HomeBuilder unwind may have run its course” but the latest report “puts that idea to rest.”

Commonwealth Government bond yields moved lower on the day. By the close of business, the 2-year ACGB yield had lost 2bps to 1.10%, the 10-year had shed 4bps to 1.88% while the 20-year yield finished 2bps lower at 2.43%.

Approvals for new houses decreased by 16.1% over the month after rising by 4.3% in August after revisions. On a 12-month basis, house approvals were 3.5% lower than they were in September 2020, down from August’s comparable figure of 25.0%.

Hassan pointed out “a big fall” in house approvals aligned with continued unwinding of the HomeBuilder scheme, noting it is unusual for approvals in this segment to fall by quite so much in one month.

Apartment approval figures are usually a lot more volatile and September’s total rose by 17.4% after an increase of 14.4% in August. The 12-month growth figure declined from August’s revised rate of 49.1% to 44.9%.

“Unit approvals are likely to continue to rise while investor lending is strong, though rising interest rates, particularly fixed rates, may curb residential investor demand,” said ANZ senior economist Adelaide Timbrell.

Non-residential approvals decreased by 11.3% in dollar terms over the month but were still up 49.5% on an annual basis. Figures in this segment also tend to be rather volatile.

Residential alteration approvals fell by 20.0% in dollar terms over the month but were 10.6% higher than in September 2020.

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