The number of dwelling commencements is set to fall further because of rising interest rates, according to JP Morgan.
JP Morgan’s chief economist Stephen Walters said housing starts are likely to total around 150,000 in 2006, having averaged 165,000 per year over the preceding four years.
“JPMorgan forecasts further declines in the near term because of rising interest rates (which squeezes affordability) and flat house prices (i.e. movements in house prices often drive development activity), and despite slightly stronger population growth owing to increased overseas migration.” he added.
According to the latest Australian Bureau of Statistics, dwelling commencements fell 2.3% in the June quarter to 37,781, following a 9.2% rise in the March quarter.
In the three months to June 2006, other dwellings commencements fell 8.0% to 11,465, whilst private sector house commencements rose 0.9% to 26,004.
According to JP Morgan, dwelling commencements have fallen in seven of the last nine quarters and are 16% below the March 2004 peak.
BT Financial Group’s chief economist Chris Caton said commencements held up quite well in the June quarter, following their huge rise in the March quarter.
“They continue to run at a high rate relative to approvals, for reasons that are not completely obvious. They suggest that residential construction has switched from subtracting from growth to contributing.
“Our monetary-policy call is unchanged. There is an even-money chance of a further rate rise in November,” Caton said.
On a state-by-state basis, the seasonally adjusted number of housing starts increased in Western Australia, up by 16.2%, Queensland, up by 10.4%, Tasmania, up by 9.7%, and Victoria, up by a bare 0.7%.
Dwelling commencements fell by 30% in the Australian Capital Territory and were down by 19.9% in New South Wales and 8.8% in South Australia.
In original terms, starts jumped by 42.5% in the Northern Territory.
HIA’s chief economist Harley Dale said that the modest fall nationally hid a sharp decline in housing starts in New South Wales, and starts in most other states remain down on year ago levels.
“The stark differences in housing conditions across Australia are as apparent now as ever. Queensland (primarily North Queensland) and Western Australia are the only strong housing markets.
“Indeed if you take these two states benefiting from the resources boom out of the mix, housing starts fell a sharper 9% in the June quarter,” he added.
“This situation strongly reinforces the need to sit back and assess the full effect of the two interest rate rises implemented in 2006 to date and we are still quite some distance off being able to assess what those full effects are,” Dale said. “Housing starts fell in six out of eight states and territories in 2005/06 and while a mild improvement should hopefully unfold this year, the only risk is that such a recovery fails to emerge.”
By Kathryn O’Meara
