Building activity in Australia's construction sector deteriorated last month, underpinned by a reduction in new business, but stable interest rates this year should provide some support to the housing sector.
The Australian Industry Group/Housing Industry Association (HIA) performance of construction index (PCI) fell 3.7 points to a reading of 48.4 in January, below the 50.0 points level separating expansion from contraction.
Ai Group economic and research associate director Tony Pensabene said the reduction in new business is consistent with reports by companies of a decline in customer enquiries and fewer invitations to tender.
"With new orders having now fallen for four straight months, weakness in the industry is set to continue, pushing any recovery out to at least the second half of 2007," he said.
"On top of this, interest rate uncertainty, low housing affordability and land supply shortages are among the factors having negative influences on demand.
"Under these conditions, industry needs stability in the interest rate environment."
Of the sectors surveyed, only commercial construction expanded in January, having risen seven consecutive months.
The house building and apartment sectors remained in decline, while work on engineering construction projects fell for the first time since April 2006.
The result follows the moderate growth in total construction activity recorded in December 2006.
HIA housing and economics executive director Simon Tennent said the combined effect of the three interest rate rises of 2006 had taken the wind out of the sails for Australia's builders.
"It is hoped, however, that with the inflation cycle now easing, and with house prices still edging up and rental markets tightening, housing demand will return in 2007," Mr Tennent said.
AAP
