You are using an older browser version. Please use a supported version for the best MSN experience.

Surging approvals could hit home prices

AAP logoAAP 30/08/2016 Marty Silk

House prices are almost certain to cool as building approvals continue to peak, economists say.

Home approvals leapt 11.3 per cent in July, and jumped 3.1 per cent in the year to the month, the Australian Bureau of Statistics said on Tuesday.

That's far higher than market predictions of a weak 1.1 per cent monthly rise.

The strong July figures were driven entirely by a 23 per cent jump in the 'other dwellings' category, which includes apartment blocks and townhouses, while house approvals fell 0.5 per cent in the month.

Westpac said approvals in the high rise subcategory skyrocketed 45 per cent in July, the second highest monthly rise on record.

UBS economists said home building will likely continue to contribute to economic growth for the foreseeable future.

"Dwellings completions (housing supply) will increase significantly further from now, and will not actually peak until 2018," the economists said in a note.

"Dwelling investment seems likely to continue to rise in 2017, which provides a key support to our recently upgraded GDP forecast for above consensus growth of three per cent year-on-year in 2017."

JP Morgan economist Tom Kennedy said it was a very large, looming expansion of housing supply given that demand was already facing headwinds from new rules about the number of loans banks are able to give to investors and foreign buyers.

"What that tends to suggest, from a fundamental point of view, is that price growth should cool on the back of that," he told AAP.

"We don't think that's going to be a difficult adjustment in terms of very sharp price declines and property not clearing, we instead think that it's going to be more of a prolonged deceleration in annual price growth."

Housing Industry Association chief economist Harley Dale said the rise in approvals was mainly in NSW and Victoria, which is risky if confidence on those markets was derailed or population growth slowed.

"You'd think the market can absorb everything that cames on board," he told AAP.

"But if you were to see signs of that population spark in NSW and Victoria coming off the boil I think that would be cause for concern."

image beaconimage beaconimage beacon