Australia's home building boom is starting to taper off

Approvals for houses in Australia dropped 0.2 per cent in November, continuing a recent downtrend.
Approvals for houses in Australia dropped 0.2 per cent in November, continuing a recent downtrend.

Australia's home building boom is starting to taper off with approvals for new homes fading over the year, say economists.

Approvals for the construction of new homes rose 7 per cent in November, beating market expectations of a 4.5 per cent rise.

However, building approvals were actually down 4.8 per cent over the 12 months to November, the Australian Bureau of Statistics said.

Housing Industry Association senior economist Shane Garrett said the main driver of the November jump were approvals of private sector dwellings excluding houses, which were up 18.5 per cent.

Meanwhile, approvals for houses dropped 0.2 per cent in November, continuing a recent downtrend.

"The year 2016 was a record one for new dwelling commencements and this will ensure that the volume of residential building activity remains elevated over much of 2017," Garrett said.

"However, we anticipate that new dwelling starts will decline over the next 12 months, with this likely to be felt on the ground towards the end of this year."

JP Morgan economist Tom Kennedy said the jump followed sharp declines in the past two months, and it was unlikely to be beginning of an upturn in residential construction activity.

"Underlying themes in the approvals data remained unchanged following today's print," Kennedy said.

"Quarterly approvals are on track to record a sharp decline between third and four quarters of 2016, which suggests that while the volume of existing work in the pipeline will continue to add to GDP growth for a while yet, the impulse is likely to fade."

RBC Capital Markets analyst Andrew Scott said the last three months of building approvals data seemed to reaffirm the view that Australian housing starts peaked in 2016, which was bad for companies dependent on the boom.

"While we believe that materials demand may be supported for some time beyond this, a slowing detached housing starts profile will provide negative sentiment for the building materials stocks," Scott said.

"We retain a cautious sector stance around the Australian housing exposed stocks."

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