Building Approvals

Prepared by Bank of Melbourne

• The pace of growth in building approvals appears to have hit a speed bump with back-to-back declines over May and June. The annual rate of decline slipped to 13.0% in the year to June, but we expect approvals should return to positive growth in July.
• Weakness over the past two months has been concentrated in private sector ‘other’ dwellings. Although the sharp drop is somewhat worrying, caution should always be taken in interpreting this data given approvals within this category are extremely lumpy. Approvals in private sector houses fell in the month, but the trend remains upwards.
• The decline in June was driven by Victoria, reflecting a pullback from above average levels of activity. The number of building approvals in NSW for June overtook Victoria’s for the first time since November 2007, and suggests a shift may be beginning to occur among States. An upward trend is intact for NSW, QLD, WA, SA and the ACT.
• Today’s data, however, could signal some underlying weakness in dwelling investment, although we expect a recovery to continue. Taken with a rise in the unemployment rate, well contained inflation and concerns about the impending drop in mining investment, we expect the RBA will cut the cash rate by 25 basis points when it meets next week.