NSW, HomeBuilder unwind drive October approvals drop

Summary: Home approval numbers drop 12.9% in October, greater than -2.0% expected; down 8.1% on annual basis; driven by fewer approvals in NSW, end of HomeBuilder scheme; ANZ: approvals figures “to drop further, Westpac: HomeBuilder unwind probably finished; house approvals up 4.5%, apartment down 36.1%; non-residential approvals down 20.9%, residential alterations up 2.6% 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 October and total residential approvals dropped by 12.9% on a seasonally-adjusted basis. The fall over the month was greater than the 2.0% decline which had been generally expected as well as September’s 3.9% decrease. Total approvals decreased by 8.1% on an annual basis, down from the previous month’s revised figure of +14.1%. Monthly growth rates are often volatile.

“The magnitude of the drop was driven by a reversion in approvals in New South Wales, though it also reflects an ongoing moderation of approvals from Homebuilder highs nationally. Only Queensland saw a rise in monthly approvals,” said ANZ senior economist Adelaide Timbrell.

The report was released on the same day as October’s private credit figures and Commonwealth bond yields fell noticeably on the day. By the end of it, the 3-year ACGB yield had shed 4bps to 1.05%, the 10-year rate had lost 6bps to 1.70% while the 20-year yield finished 7bps lower at 2.17%.

Timbrell expects approvals figures “to drop further as borrowing costs continue to rise and the boost from Homebuilder unwinds.” She noted immigration would “provide some offset” when it resumes.

Westpac senior economist Matthew Hassan thinks any reversion to “normal” following the short-term boost is probably over, noting there are now “clearer signs the HomeBuilder unwind has finished.” However, he thinks several more months will be required to confirm his view but, if correct, “approvals have bottomed out at a much higher level than might have been expected…”

Approvals for new houses increased by 4.5% over the month after falling by 15.2% in September after revisions. On a 12-month basis, house approvals were 4.4% lower than they were in September 2020, down from September’s comparable figure of -2.0%.

Apartment approval figures are usually a lot more volatile and October’s total fell by 36.1% after a decrease of 17.1% in September. The 12-month growth figure reversed from September’s revised rate of 45.5% to -15.1%.

Non-residential approvals decreased by 20.9% in dollar terms over the month and by 25.4% on an annual basis. Figures in this segment also tend to be rather volatile.

Residential alteration approvals increased by 2.6% in dollar terms over the month and were 14.7% higher than in October 2020.

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