Building approvals drop as incentive cut

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Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

 

Approvals to build private houses dropped with a thump in January, after scaling record highs in December as people rushed to secure the full benefit of the federal government’s HomeBuilder grant before it was reduced.

Australian Bureau of Statistics figures show private sector housing approvals tumbled 12.2 per cent to 12,125 in January.

However, approvals were still 38 per cent higher than a year earlier.

“The surge in HomeBuilder applications at the end of 2020, as well as the extension of the program to March, will continue to provide support for private house approvals in the coming months,” ABS director of construction statistics Daniel Rossi predicted.

House prices in February rose at their fastest pace since 2003, while demand for home loans were equally rampant with mortgages granted to first home buyers over 70 per cent higher than 12 months ago.

Overall building approvals fell 19.4 per cent in January, led by a 39.5 per cent slide in the more volatile “dwellings excluding houses” component.

Meanwhile, the start of the national COVID-19 vaccine rollout has proved a shot in the arm for confidence after an unsettled start to the year.

The weekly ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – rose one per cent, ending three weeks of consecutive declines.

However, ANZ head of Australian economics David Plank said the highlight of the survey taken over the weekend was a further rise in consumer inflation expectations to 3.9 per cent, its highest level since last April.

Mr Plank said rising petrol prices, coupled with a strong housing market and the faster than expected recovery in the labour market could be fuelling inflation concerns.

“Inflation expectations are still below pre-pandemic levels, so could rise further without causing undue alarm for the RBA,” he said.

Reserve Bank governor Philip Lowe has repeatedly said the board won’t increase the cash rate from its record low 0.1 per cent until actual inflation is sustainably within the two to three per cent target, and probably not until 2024.

The consumer price index was just 0.9 per cent at the end of 2020.

However, financial markets appear sceptical of such an outlook, with interest rates, or yields, on government bonds factoring in 0.5 per cent of rate hikes by the end of 2023.

Global bond yields have risen sharply in recent weeks on the view that the world economy will recover from the COVID-19 induced recession quicker than first thought, fuelling inflation.

Such market action runs at odds with what the RBA and other central banks are trying to achieve through massive bond buying programs, otherwise known as quantitative easing, aimed at keeping market interest rates, and in turn borrowing costs, low.

The RBA purchased $4 billion worth of three-year bonds on Monday, double the usual amount, as it tried to push back against market moves.

The central bank holds its monthly board meeting on Tuesday.

At its February board meeting, while keeping the rate at 0.1 per cent on its suite of policy measures, the RBA also unexpectedly announced it will purchase an additional $100 billion in government and state bonds when an existing program ends in mid-April.

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