Housing construction could recover in late 2012: Deloitte Access Economics
Housing construction is set to remain under pressure for the first few months of 2012, but might start picking up again in late 2012, according to the latest Business Outlook report from Deloitte Access Economics.
The consulting group is forecasting private dwelling investment to increase by a modest 3.5% in 2012 (compared with 1.4% drop in 2011) but then accelerate to 12.7% in 2013 before returning to moderate growth of 3.3% in 2013.
“The pace of housing construction is going nowhere in a hurry. Indeed, that trend has been evident in leading indicators such as approvals and loans for a while now,” the report says.
According to Deloitte Access Economics, growth in housing construction is being curtailed by the mortgage rate increases of late 2010, current housing price trends (high but falling) and “lingering difficulties for developers seeking finance for high-rise apartment blocks”.
“That’s why the latest data (September quarter dwelling unit commencements) show new housing starts falling further, and why there’s no surprise in the increasing anecdotal reports of home builders laying off staff.
“And given that today’s housing starts are the result of decisions made some months ago – when concerns were at their greatest, and there was still a good chance of further interest rate hikes – there’s no immediate upturn in sight,” the report says.
However, there are signs of a revival driven by a rise in lending commitments for housing, now at a four-year high, as well as successive rate cuts, which have “whetted appetites”.
Furthermore, the report says that while the gap between demand for housing and its supply “does not imply a surge in construction tomorrow, it does add important upward pressure”.
Examining the wider economic environment, the sub-title of the report “Eurogeddon” makes it clear what will be the tipping point for 2012.
“Europe is the key to global growth: its mismanaged crisis means the euro could falter and banks could go bust, sending shockwaves around the world,” the report says.
“Yet it‘s marginally more likely the eurozone muddles through, with sticky tape holding the euro together and ECB funding to banks keeping the market wolf from the sovereign debt door,” it says.
Deloitte Access Economics is forecasting the eurozone to fall into recession in 2012 with negative growth of 0.4% followed by marginal growth of 1.8%, 2.3% and 1.9% over the next three years.
In contrast, Australia’s economic outlook is far healthier, with the economy forecast to expand by 3.6% in 2012, 3.5% in 2013 and 3.4% in 2014.
The report identifies two possible paths for the Australian economy over the next few years depending on what happens globally:
“If the world muddles through, then Australia will grow faster than you think it will: surging resource construction will underwrite a lot of growth, as will a further rebound in coal output from the early 2011 floods. That will combine with better news in retail and home building (thanks to Reserve Bank rate cuts) to keep growth relatively rapid in 2012, though it may lose some steam in 2013 as the rebound in coal output runs its course. Moreover, that acceleration in growth would occur despite well-publicised negatives: the hit to consumer and business confidence from the horror headlines in Europe, the winding back of federal government stimulus, and continuing pain for many firms from the Australian dollars stellar strength.
“However, if Europe blows, Australia’s outlook tanks” and “Eurogeddon” becomes a possibility.
“Resource sector construction would still surge, leaving us among the fastest growing economies in the world. Yet that would be little consolation: growth would still slow and unemployment rise as confidence saps spending by firms and families here at home, the weak world economy cuts commodity prices (and so national income), and money becomes ‘too tight to mention’, as European bank failures would mean a credit crunch even if the RBA cut hard and fast,” says Deloitte Access Economics.