Building approvals fell 4.4% during April which was more than twice the pullback of the 2% market economists had forecast for the month.
What drove the unexpectedly large fall, according to CBA senior economist Michael Workman, was the “15% fall in the volatile multi-unit approvals segment.”
But, Workman added “residential approvals are running at a record 214k annual pace. We expect a total approvals number near 215k for calendar 2015.” That means that “there is a record level of construction underway.”
Even though Treasury Secretary John Fraser highlighted the “bubble” in Sydney property prices earlier today, Workman’s summary will gladden the heart of Glenn Stevens and his colleagues keen for the domestic economy to pick up the slack from the mining boom.
The strength in residential building approvals and construction has surpassed expectations formed last year. Australia could have consecutive record construction outcomes in 2014 and 2015. The ingredients to the mix are low mortgage rates, firm population growth, demographic change to inner-city living and extraordinary pre-sales demand for new properties. Parts of retailing are also benefiting from the demand for furnishings, floorings, electrical and white goods.
That is how this low-interest rate environment is supposed to work. The RBA didn’t and doesn’t want Sydney property prices ripping higher but it does want the construction boom and associated jobs and retail activity.
That’s led Workman to conclude that “residential construction is fulfilling its part of the growth transition.”