Home Building To Decline 20%
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Home Building To Decline 20%

Labour and materials shortages are set to pinch home supply.

By Terry Christodoulou
Wed, May 25, 2022 8:50amGrey Clock 2 min

Australia is staring into the headwinds of a ‘shallow’ 20% decline in housing construction over the next three years as building materials and labour shortages extend building timeframes — despite higher borrowing costs and affordability problems cutting demand, according to the Housing Industry Association (HIA).

The decline from 229,000 housing commencements in the 2021 calendar year to an estimated 183,800 in 2024 is projected based on unemployment remaining at low levels and an extension of construction times from 8.3 months to 12.2 months on average.

However, different sectors of the housing market should be expected to behave differently. A 34% decline in detached houses starts through to 2025 will be offset by an increase in apartment commencements and other attached homes — buy 14% — by 2026 as immigration increases, according to HIA’s quarterly forecast.

“Ongoing strong demand for homes is assisting builders to trade through this cycle, but rising borrowing costs and slowing demand will increase cash flow pressures, before the availability of materials improves,” the HIA report says.

“The combined impact of higher interest rates, increased cost of a new home and capacity constraints will see the volume of homes commencing construction slow to a trough in 2025.”

The decline in home building is forecast to last for 13 quarters — longer than the typical two-year fall according to the HIA.

Following a peak of 141,150 detached home starts, the total will fall to 128,790 this year and then slip 5.2% in 2022. Higher interest rates will dampen demand with commencements cut to 108,890 in 2024 before bottoming out at 99,350 in 2025.

Attached home starts will rise 1.2% in the financial year 2023, and 3.9% in 2024 to reach 80,700 from last year’s 74,350.

The market should expect 4.3% of further growth in 2025 and 4% in 2026 bringing the total to 87,560.

 

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House values continued to fall last month, but the pace of decline has slowed, CoreLogic reports.

In signs that the RBA’s aggressive approach to monetary policy is making an impact, CoreLogic’s Home Value Index reveals national dwelling values fell -1.0 percent in November, marking the smallest monthly decline since June.

The drop represents a -7.0 percent decline – or about $53,400 –  since the peak value recorded in April 2022. Research director at CoreLogic, Tim Lawless, said the Sydney and Melbourne markets are leading the way, with the capital cities experiencing the most significant falls. But it’s not all bad news for homeowners.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3 percent,” he said. “That has now reduced by a full percentage point to a decline of -1.3 percent in November.  In July, Melbourne home values were down -1.5 percent over the month, with the monthly decline almost halving last month to -0.8%.”

The rate of decline has also slowed in the smaller capitals, he said.  

“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls,” Mr Lawless said. “However, it’s fair to say housing risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched.” 

The RBA has raised the cash rate from 0.10 in April  to 2.85 in November. The board is due to meet again next week, with most experts still predicting a further increase in the cash rate of 25 basis points despite the fall in house values.

Mr Lawless said if interest rates continue to increase, there is potential for declines to ‘reaccelerate’.

“Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Mr Lawless said.

Statistics released by the Australian Bureau of Statistics this week also reveal a slowdown in the rate of inflation last month, as higher mortgage repayments and cost of living pressures bite into household budgets.

However, ABS data reveals ongoing labour shortages and high levels of construction continues to fuel higher prices for new housing, although the rate of price growth eased in September and October. 

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