Housing construction bounces back

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Australian dwelling starts rose for the third straight quarter, lifting by 4.3% in the March quarter signalling a return of construction to the residential market .
The Australian Bureau of Statistics data showed work has started on 42,399 dwellings in the quarter – the biggest quarterly result in almost six years.
This has returned housing starts to an annualised level of nearly 170,000 new dwellings.
However, CommSec noted that shortfall of dwellings still appears concentrated in NSW, and to a lesser extent Queensland. But in the ACT, Tasmania and Victoria the amount of home-building is well above longer-term averages it stated.
“The increased supply of homes coming onto the market, together with the softening of demand in response to higher interest rates should lead to more balanced conditions and more sustainable growth of home prices,” said Craig James, chief economist with CommSec.
James added that he expects Australian home prices to grow by 5-8% over 2010, compared with current annual growth rates closer to 12%.
“All the anecdotes indicate that heat is being taken out of the housing market and home prices should grow at a more sustainable pace in the second half of the year,” he said.
Harley Dale, HIA Chief Economist Dale said the level of detached house starts, while considerably healthier than during the GFC period, fell by 2.1% during the March quarter. “The strong run up in building approvals through to early 2010 is not translating into new home starts as quickly as is desirable. The conversion rate for approvals to starts fell below the long term average to sit at 94% in the March quarter,” he said.
Dale argues that tight credit conditions and uncertainty over rate rises are to blame for the initial fall and subsequent slow improvement in the residential construction sector. However, the sector is fighting back. “HIA continues to expect a relatively healthy rise in housing starts in the 2009/10 financial year, albeit off a very low base,” he said.

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