It’s all part of the “great rebalancing act”.
Mining has been the Australian economy’s mainstay, but now the country needs other sectors to throw their weight behind Gross Domestic Product growth, and HSBC Australia and New Zealand chief economist Paul Bloxham thinks 2013 will be the year housing comes to the party.
Recent figures showed that the 3.6% growth in Australia’s GDP last year was largely driven by strong mining investment. Half of the country’s growth came from our most high-profile sector, despite mining only accounting for one-tenth of the economy. This meant that other areas slowed down to make way.
“Mining investment grew by 42% in 2012, following a similar rise in 2011. In stark contrast, housing construction has been very weak. Dwelling investment fell 4.5% in 2012, after barely growing in 2011 (+0.7%),” Bloxham said in a note this morning.
But this year should be different.
“Housing construction is one area that is ripe for recovery. Weak residential building in recent years, combined with rising population growth in coming years should support a pick-up in demand for housing.
“Last year’s interest rate cuts have already substantially improved affordability, which is lifting housing market activity. Mortgage rates are now around their lowest levels since the 1960s (aside from the short period after the global financial crisis began in 2009).
“Loose global monetary policy is also likely to be supporting the Australian housing market, with some evidence of increasing foreign capital flowing into the sector,” he said.
“While there is still some structural hurdles to housing construction, which Bloxham said include planning, land release and zoning, “rising prices are typically a good lubricant for cutting through these issues.”
HSBC’s Australia and New Zealand’s view is that the fall in house prices that occurred in the 18 months to last may (down 8%) was the key reason housing construction has been weak in recent years.
“A pick-up in housing construction and prices are key elements of the ‘great rebalancing act’ that we are forecasting for this year. To achieve this, the RBA have cut the cash rate to its historic low, of 3.00%.
“While they could cut rates further, we think they won’t need to. Indeed, the risk that low interest rates may create other problems further down the track, such as excessive housing price inflation, will probably start to factor into RBA decision-making soon,” Bloxham said.
Here are the key points from the note:
1. Rising housing prices and construction are a key element of Australia’s ‘great rebalancing act’, as the mining story fades
2. Low mortgage rates are already lifting house prices and construction is forecast to rise solidly in the next 18 months
3. While not a key concern yet, the risks may soon shift to concerns about overinflating the housing market
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