New home building could pick up in second half of 2012: RBA

The Reserve Bank has backed up its August 7 cash rate statement that the housing market is showing signs of firming with expectations that residential construction activity could pick up in the second half of the year.

“There are tentative signs that housing market conditions and residential building activity may be starting to improve,” says the RBA in its August statement on monetary policy.

“Dwelling prices have increased modestly in recent months in most capital cities, but remain down a little over the year.

“Demand for housing finance is broadly unchanged from a year ago.

“With building approvals rising from low levels in recent months, there are signs that residential activity may start to pick up some time in the second half of 2012; lower interest rates, rising rental yields and population growth are likely to provide support for new housing construction," says the RBA.

In the RBA’s August 7 monetary policy decision statement put out after it announced that the cash rate would remain unchanged at 3.5%, the central bank said that while it was too soon to see the full impact of interest rate changes, "dwelling prices have firmed a little over the past couple of months, and business credit has over the past six months recorded its strongest growth for several years.”

The RBA also provided an economic update in today's August monetary policy statement, saying the  outlook for the Australian economy is largely unchanged from the May statement, though it has boosted the outlook for GDP growth over 2012 to 3.5%.

"Real GDP growth is forecast to slow somewhat over the second half of 2012 as the strong growth of domestic demand in the first half of the year moderates. While the forecast for growth in the second half of 2012 is similar to that in the May Statement, the stronger than-expected growth in the first half of 2012 has boosted the forecast for GDP growth over 2012 to 3.5%.

"The economy is then expected to grow at around 3% over 2013 and 2014," says the RBA.

It added that while an "adverse shock to global demand would be expected to reduce commodity prices, and hence Australia’s terms of trade, by more than is currently forecast" the country remains "relatively well placed to respond to such shocks given the scope to adjust macroeconomic policies and a robust financial system; movements in the exchange rate would also be expected to play an important role in adjusting to such shocks".