More Than Expected Fall Recorded in Australian Building Permits

Overnight data indicated that Australia’s seasonally adjusted building approvals declined by 8.7% on a monthly basis in September, higher than market expectations for a fall of 3.0% and following a drop of 1.8% in the prior month. It was the second straight month of decrease and the fastest drop since November 2015.

On a yearly basis, building approvals were down 6.4 percent - again missing expectations for a gain of 2.1 percent following the 10.1 percent spike in the previous month.

Permits for new houses fell 2.5 percent to 1,813, having gained 4.1 percent a month earlier. The monthly figures were bolstered by a jump in Wellington permits, which included 93 units in the Wellington City Council-owned Arlington Apartments.

Private sector house approvals rose 2.3 per cent in September, while the 'other dwellings' category, which includes apartment blocks and townhouses, fell 16.3 per cent.

"This suggests that some adjustment in the housing market is occurring on both a nominal and real basis, and is suggestive of broader housing market stabilisation," Mr St John said.

"Moreover, this reinforces our argument that the decline in residential investment will be a gradual story as we move in to 2017, rather than seeing any harsh nominal adjustment."

"Today's sharp lift in non-residential approvals led by commercial property (particularly offices) adds to recent signs that past year's weakness in non-mining capex is fading, an additional potential source of growth over the next couple of years," a UBS economists said.

UBS economists noted the value of non-residential building approvals had more than doubled to $5.54 billion in September, after falling 24 per cent to $2.53 billion in August.

Citi economists said an apartment oversupply was already apparent in several key postcodes in Melbourne and Brisbane, with re-sales only being achieved at lower prices.

"However, underlying housing demand appears sufficiently strong to prevent contagion across the broader housing market," they said.

That flags a turnaround in non-mining investment, driven particularly by commercial property, they said.

According to analysts, record low mortgage rates aren’t providing much of a boost in home buying. Rock bottom rates do seem to be helping boost inflation. Consumer prices rose 0.7% in the third quarter and 1.3% annually, government data showed last week. Both readings were higher than forecast.

The Reserve Bank of Australia (RBA) kept interest rates unchanged earlier this week, as inflation continued to undershoot the central bank’s target by a wide margin.