RBA notes signs of “prospective improvement” in housing investment

The two consecutive monthly rises in building approvals in August and September appears to have been a key factor in the RBA’s decision to keep the cash rate on hold at 3.25% on Melbourne Cup Day.

Building approval figures are seen as a forward indicator of future construction activity.

Today's monetary policy decision statement from RBA governor Glenn Stevens notes that there have been “some signs of ongoing growth [in the economy] though a return to very strong growth in consumption is unlikely.

Stevens goes on to say in the next sentence that while "investment in dwellings has been subdued for some time, over recent months there have been some indications of a prospective improvement".

In contrast, he says “non-residential building investment has remained weak”.

ABS data shows that the number of dwellings approved for construction rose 7.8% to 13,338 in September 2012 in seasonally adjusted terms following a 6.4% rise in August.

These two increases partially reversed a 21.2% decline in dwelling approvals in July.

Over the year to September, approvals for houses are down 1.8%.

However the peak residential building industry body, the Housing Industry Association, said the RBA had got its cash rate call wrong.

“Signs of a new home building recovery are tentative and cracks are already appearing, renovations activity is falling, housing prices are benign, and wider inflationary pressures are in check. Against this backdrop it is disappointing that rates were left on hold today,” says HIA chief economist, Dr Harley Dale.

“Today’s lack of action is inconsistent with the indication that was conveyed to households and businesses by a renewed easing of interest rates in October, which followed a mid-year period of steady rates and mixed messages,” says Dale.