Still no signs of a housing recovery in Victoria

The RBA’s decision to lower official interest rates by 0.25 percentage points is welcome news, although a 50 point reduction was surely justified.

On a seasonally adjusted basis, total building approvals in July increased by 2.7 per cent in Victoria, a better result than a 2.3 per cent fall for Australia as a whole.

However, the number of detached house approvals in Victoria fell by 7.2 per cent to be at their lowest level since June last year.

For the multi-unit sector, approvals were up by a strong 28.4 per cent to 1,321, the highest monthly level since June 2005.

Although this is good news for Victoria, HIA Acting Executive Director Robert Harding said the situation for housing starts in the second half of 2008 and early next year was still dim.

“Victoria is still some 6000 homes short of underlying demand,” said Mr Harding. “HIA research shows the state will struggle to build 40,000 new homes in 2008/09, well below the 46,000 being built per year earlier in the decade.

HIA Chief Economist, Harley Dale said Australia’s housing shortage would reach 45,000 dwellings in the 2008/09 financial year alone.

“A larger reduction in rates was required to ensure the massive shortfall in Australia’s housing stock begins to turn around as soon as possible,” said Harley Dale.
Provided the full impact of today’s 25 percentage point cut in the official cash rate is passed on to mortgage holders that will save a household with a $200,000 mortgage over $36 per month.
“If the full rate cut is not passed on then the effect on already fragile household confidence could be quite damaging,” Mr Dale said.