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Highlights
- Data released by the Australian Bureau of Statistics (ABS) shows dwelling approvals rose while the international trade balance declined in December 2021.
- Tightening lending restrictions led to residential dwelling approvals slowing down by 1.8% in December 2021.
- Imports remained strong despite supply chain snags and shipment delays.
Building approvals have been on the rise in Australia, with the private sector securing a large chunk of dwelling approvals. Data released by the Australian Bureau of Statistics (ABS) on dwelling approvals for December shows that the seasonally adjusted estimate for total dwellings rose 8.2% during the month. On the contrary, private sector houses fell 1.8% during the month, while dwellings other than housing rose 27.5%.
At the same time, data on international trade was also released by the ABS, and it showed a declined goods and services surplus for the Australian economy in December. The rise in exports was outpaced by a rise in imports, resulting in a negative trade balance. However, the country managed to secure a rise in both exports and imports, bolstering through major supply chain snags and shipment delays happening in the backdrop.
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Housing market resonating with depleting stimulus
The drop in detached houses has come because of tightening monetary measures seen in Australia. The Reserve Bank recently announced the termination of its bond-buying program, which had been put in place to facilitate a greater supply of money.
The HomeBuilder grant, which was removed in April 2021, had contributed significantly to the rise in housing approvals seen in the first half of 2021. Since the removal of the grant, housing approvals have been on a downward path, with December being the second consecutive month of decline. In November 2021, dwelling approvals for housing fell 1.6%, after a short rise in October. Overall, there was a drop of 31.5% in the series since April 2021, right when the HomeBuilder grant had been pulled away.
In terms of valuation, the total residential housing value rose 7.8% in December, pointing to the steep rise in prices of housing. Within this 7.8% increase, there was an 8.3% rise in the value of new residential buildings and a 5.2% rise in the value of alterations and additions.
International trade battles supply-side headwinds
Australia engaged in heavy imports in December, as total goods and services imported increased by 5% during the month. The value of imports rose by AU$1.76 billion to AU$36.96 billion, owing to a sharp rise in imports of non-industrial transport equipment.
However, the rise in exports was not as significant as it measured up to a rise of only 1% during the month. ABS data shows that exports rose AU$360 million to AU$45.32 billion as exports of metal ores and minerals took centre stage. Evidently, imports rose by a larger margin than imports, contributing to a negative balance on surplus.
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Has the central bank lost control?
Dwelling approval data released by the ABS has direct implications on real estate markets. However, the magnitude of the impact can’t be stated. Residential dwellings have seen a range of mixed factors, like receiving positive reinforcement from record-low interest rates and facing obstacles in the form of heightened borrowing restrictions and rising interest rates of commercial banks. Thus, the market has transformed into a boiling pot of concerning factors that are tugging at opposing ends of a stable state.
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While experts sit hopefully waiting for an interest rate hike, the RBA has constantly shattered these expectations. There seems to be massive uncertainty on whether an earlier-than-expected rate hike can arise because of the concerning rise in inflation in the economy. Thus, the central bank must now carve a way out of these headwinds, which need a diversified solution.
Bottom Line
A rise in non-residential dwelling approvals could hint at businesses getting prepared for a return to regular working conditions. Meanwhile, uncertainty is expected to loom large at the fate of goods and services traded internationally as supply-chain restrictions and border controls continue to plague the sector. In a nutshell, clarity regarding the profitability of businesses and adaptability to the new virus strain would be attained after some more time is spent in murky waters.
