A stronger than expected rise in building approvals could be the foundation of a housing sector recovery, economists say.
Signs are emerging that the effect of last year's three interest rate rises is starting to fade.
The more stable private sector housing component posted strong gains, while building construction activity is starting to pick up.
Australian building approvals rose 8.1 per cent to 12,858 units in April, seasonally adjusted, from an upwardly revised 11,898 units in March, the Australian Bureau of Statistics (ABS) said today.
Economists had expected approvals to rise by 2.5 per cent in April.
In the year to April, building approvals went up by 4.5 per cent.
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Grange Securities chief economist Stephen Roberts said the housing sector would continue to grow strongly in the second quarter of 2007.
"All told, the April home building approvals figures are consistent with signs of recovery in housing activity and add to the run of economic readings that point to accelerating economic growth continuing into the early part of the second quarter," he said.
Most of the rise in building approvals during April came from a 19 per cent jump, seasonally adjusted, in the "other sector" for private sector dwellings, which includes volatile apartment projects.
Rental shortage
The more stable private sector houses tally rose by a seasonally adjusted 3.3 per cent to 8734 new dwellings, which HSBC chief economist John Edwards said was an indication of a recovery in the housing sector.
"Sharp increases in rents, low vacancy rates and recent anecdotal reports of increased house prices would be consistent with this," Dr Edwards said.
Nonetheless, most of the increase in new building approvals was in Queensland, which experienced a 31.6 per cent seasonally-adjusted rise in total new dwellings and a 24.9 per cent gain in private sector houses.
QLD leading the way
"The approvals gains were almost entirely in Queensland, however, with New South Wales and Victoria seeing further decline.
"If there is indeed recovery, it is still very patchy."
Commonwealth Bank of Australia senior economist Michael Workman said it was difficult to be negative about the housing construction outlook.
Forecast
"The strong underlying fundamentals of firm jobs, population and income growth, and low vacancy rates are expected to drive the gradual rise in national dwelling construction over 2007 and 2008," he said.
Mr Workman said construction companies still had healthy order books, with activity likely to flow at high levels into next year for the non-residential sector.
But JPMorgan economist Helen Kevans said the Reserve Bank of Australia's (RBA) decision to raise rates last year was still slowing residential construction activity.
"Indeed, the building approvals series is volatile, failing to indicate any clear trend emerging in the property market," she said.
"Still, the impact of the RBA's three quarter point rate hikes last year are likely still feeding through the residential construction sector, which continues to battle with rising material costs; this suggests there may be further correction in the sector to come."
Most economists expect interest rates to remain on hold for the rest of 2007.
Source: AAP
