Record building boom; Solid Chinese economy

Chinese Economic data; Dwelling starts

Source : Savanth Sebastian — Economist (Author) Twitter: @CommSec

More homes started: Dwelling starts lifted by 8.7 per cent in the March quarter to 48,964 — the strongest result in records going back 30 years. There were 176,477 new dwellings over the 12-months to March, the highest annual result in 3½-years and well above both 5-year and 10-year averages.

Apartment starts rose by 4.2 per cent to 20,922 in the March quarter — a record high.

Chinese economic data: The Chinese economy grew at 7.5 per cent annual pace in the June quarter — ahead of forecasts (7.4 per cent).

The Chinese economy grew by 2.0 per cent in the June quarter, up from 1.4 per cent in the March quarter.

Chinese retail sales rose at a 12.4 per cent annual rate in June, mildly below forecasts (12.5 per cent). Industrial production rose at a 9.2 per cent annual rate in June, above the forecast average (9.0 per cent).

Building & building material companies are affected by the data result including Boral, James Hardie, Adelaide Brighton, Brickworks, AV Jennings Limited, Devine Limited and the recently listed Beacon Lighting. The Chinese data is important for exporters, especially mining and energy companies

What does it all mean?

What should happen when home prices grow at a faster-than-“normal” pace? Essentially more homes need to be built (more supply) to meet the excess demand. And that is precisely what is happening. New dwelling starts have accelerated over the past 12 months, culminating in 48,964 starts in the March quarter — the highest reading in records going back 30 years. In addition the total number of starts exceeded the “normal” rate — measured as either the 5-year or 10-year average.

Interestingly the lift in new construction is not just taking place in one or two locations but is more broad-based. Home building fell in just South Australia in the March quarter and looking from a longer term perspective home building is higher than the decade average in all the capital cities except for Queensland.

It was only a couple of months ago that council approvals to build new homes hit record highs, at the same time there was a significant uplift in loans to fund home construction. In short, the supply of homes is set to rise even further to meet strong housing demand, and as a consequence the growth of home prices will soften.