ANZ Senior Economist David Plank recently said that the latest drop in home approvals were brought about by tightening of credit conditions, and if this persists, could go as much as 20% lower by 2019, as reported by Mortgage Business.
The Australian Bureau of Statistics (ABS) saw that dwelling approvals, in seasonally adjusted terms, declined by 9.4% and 13.6% from last August and 2017, respectively.
“While this weakness is not overly surprising, the fall in building approvals was even worse than our much-lower-than-consensus pick,” Plank said.
He highlighted that recent shifts in approvals were primarily driven by the availability of credit – a change in the norm as, prior to this cycle, interest rates largely affected the trend of dwelling approvals.
Given this knowledge, Plank anticipated that the slowdown in housing approvals will continue if tighter credit conditions linger.
“If we assume no easing of the credit tightening until at least after the royal commission delivers its final report in February 2019, then it seems reasonable to expect that dwelling approvals could be off as much as 15–20 per cent YoY in trend terms by early next year,” he said.
“We think the reduced availability of mortgage finance, particularly for investors, is impacting pre-sales and hence the ability of developers to secure finance.”
On the bright side, Plank still believes that a 15 to 20% drop in dwelling approvals is “not an overly huge downturn” when compared to previous declines.
“[We] think downturns driven by interest rates are likely to be deeper than those caused by a regulatory tightening of credit because higher interest rates impact the wider economy more generally.
“Time will tell whether it’s the correct way of thinking about the current cycle. Still, it’s a downturn that will cause a reasonably material pullback in residential construction.”