First signs of a building spring

IS the collapse in housing construction already over – before it and the broader collapse in the property market send mortgage defaults and so bank bad debts spiraling and the broader economy plunging into recession?

You might notice a touch of sarcasm. Ever since the Reserve Bank kicked off the new year with its ‘switch to neutral’, the economentariat has been desperately racing to pen the gloomiest prognostication.

The winners, so to speak, are those predicting that the RBA cuts its official interest rate all the way to zero, and indeed demand that it do so yesterday.

Quite what positive it would achieve – nothing. Quite what damage it would do – plenty, and devastating. But it’s all a case of the RBA must do something. It can’t just keep, well, analysing.

Well, the building approvals data yesterday was very interesting. It was reported by the ABS as “The number of dwellings approved in Australia fell by 3.2 per cent in January 2019.”

That was, as the ABS duly immediately noted, in “trend terms” – its preferred way of commenting on data.

The trouble with trend analysis is that it will miss turning points. January could have been a turning point. The seasonally adjusted data showed a 2.5 per cent lift.

Particularly – potentially – significant was that even ‘non-houses’, that’s to say apartment approvals, were up, by 2.7 per cent on the month.

Now true, the actual number of apartments approved in January was still a numbing 51 per cent down on January a year ago. And houses were still down

6.6 per cent on a year earlier.

True also, one month does not make a definitive statement. Along the way down through 2018 we saw three months where approvals kicked up.

But while not going so far as to claim “this time it’s different”, in my judgment it could be significant for three inter-locking reasons.

Given how far approvals have fallen, especially with still soaring population. Given that prices have fallen; sharply so for new buildings.

And given the very significant growth in household disposable incomes – yes, only modest growth in wages, but a very significant benefit from the big and sustained drop in home loan rates and so repayments.

Also yesterday the ABS released data showing actual dollars wages up a solid 4 per cent – a mix of that modest 2-3 per cent per person wages growth and 2 per cent jobs growth.

That’s why it all comes down to jobs, jobs and jobs.