Australian dwelling approvals, another soft month: Matthew Hassan

EXPERT OBSERVER

Dwelling approvals declined 1.5% in October, in line with the consensus forecast but with both the headline and detail a touch better than we had been expecting.

Approvals remain locked in a clear downtrend but this month's update eases some of the downside risks that had been emerging around non high rise approvals in particular.

Recall that the September approvals report showed a solid headline rise (+5.5% revised up from +3.3% previously) that concealed a much weaker underlying picture.

All of the monthly gain was due to a jump in Vic high rise approvals – excluding this segment, approvals were down 7.5% (since revised to –4.5%).

Moreover, that weak underlying picture followed a sharp 14% drop in approvals over July-August.

Going into the October update we were expecting headline approvals to reconnect with this clear downtrend. Instead the decline is somewhat milder and detail mixed rather than weak.

Private detached house approvals rose 2.7% in October with the previous month's fall pared back to from –2.7% to –1.5%.

The decline in this segment from June's peak is now a much milder 3.5% vs the 7.3% fall presented in September.

Private units posted a 4.8% drop, continuing a volatile run: +13% in September; –23% in August; and –7% in July.

Most of this is due to ‘high rise’ approvals which dropped 40% over July-August, spiked 60% in September and dropped back 40% again in October.

Forward indicators continue to point to a weak outlook for this segment, site purchases in particular.

For the month of October, a strong rise in 'medium density' unit approvals provided a material offset, this small segment up about 25% in the month, reversing a similar sized decline in September.

All states recorded declines in October, Vic showing less of a pull back than might have been expected (–2.6%mth, –13.7%yr) given last month's high rise spike; and SA notably weaker (–17%mth, –24.8%yr).

Across the other majors: NSW approvals were down –0.5%mth, –16.5%yr; Qld –1.1%mth, –13.3%yr; and WA –0.1%mth, –23.1%yr.

The total value of renovation approvals edged up 0.5% but are still down 10%yr with the trend showing no real direction.

The total value of non res building approvals rose 4% but were still down 25%yr.

While trends remain very difficult to discern, recent weakness has been most pronounced across offices.

By state, weakness over the last 3mths has centred on Qld and WA rather than NSW and Vic.

Overall, the October approvals report is weak but not quite as weak as we had feared.

While the detail eases some of the downside risks to the outlook our view remains that residential building will see a significant 5% decline in 2019.

MATTHEW HASSAN is a senior economist at Westpac