Differing interpretations of building approvals data shows it's best to stick to a longer-term view: Terry Ryder

Differing interpretations of building approvals data shows it's best to stick to a longer-term view: Terry Ryder
Terry RyderDecember 7, 2020

Building approvals are up 7% - or down 3%. It’s all a question of attitude.

Figures from the Australian Bureau of Statistics on residential building approvals in May give different perceptions depending on which set of numbers you prefer: in trend terms, the number of dwelling units approved rose 1.0% compared to April, but in seasonally-adjusted terms they fell 1.1%.

Annually, they rose 7.1% in trend terms but fell 3.2% in seasonally-adjusted terms.

Media being media, many outlets focused on the negative numbers – such as: “Building approvals fell more than expected in May, according to the ABS.”

But some emphasized the positive. AAP, for example, reported: “A recovery in the home building sector seems to be taking hold, with approvals for houses gaining for the fifth month in the row. Approvals for detached houses rose 2.5% in May. HSBC chief economist Paul Bloxham said the gain was a positive sign for the housing sector. It shows that other part of the economy, beside mining, are getting stronger.”

Master Builders Australia took a generally balanced view: “Building approvals figures released by the Australian Bureau of Statistics show mixed signals, some positive … Peter Jones, Master Builders Australia's chief economist, said the positive is that approvals are up 9.9% in the five months to May from the corresponding period a year ago.”

We take a similar view at Hotspotting, believing that the long-term trends are the most significant factor with statistics, rather than month-to-month fluctuations.

The trend graph from the ABS shows approvals of new dwellings rising strongly since the beginning of last year – from less than 12,000 per month to around 13,500 now.

The ABS graphs also show how much the numbers jump around month to month. The longer-term view is always the most informed.

CommSec chief economist Craig James said there have been clear signs of an improvement in housing construction activity in recent months.

"Low interest rates, strong population growth, healthy employment and pent-up housing demand is starting to see the housing sector shake off the shackles and begin a much-needed resurgence," he said.

"Granted it is early days, but the sector is certainly on a recovery path.

"An ongoing lift in approvals would be beneficial for the broader economy, given it is a key forward-looking indicator."

Terry Ryder is the founder of hotspotting.com.au

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

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