Jimi-d, Is this a new report by UBS Warburg, or an observation from the same report as that which was released in December?
In its December 2002 Real Estate Compendium, UBS Warburg commented that:
"Building approvals fell 19.4% in September, broadly in line with our expectation for a 17% fall (market: -12%). The decline followed August’s 22.9% gain, and reflected both a 14% drop in private house approvals (to their lowest level since mid-2001), and a 30.6% decline in medium-density approvals.
September’s result follows a sharp fall in new construction lending in August, but nevertheless leaves approvals well above their 2000/01 average level.
With approvals in September consistent with building an annual 160,000 dwelling units (down from 200,000 in August), there still appears some way to go in the adjustment process before a more sustainable pace of building activity is reached (ie, 130,000 units).
The housing sector, benefiting from very low mortgage rates and the first home buyers’ grant, contributed significantly to GDP growth in 2001. However, recent indicators suggest that the building approvals cycle has peaked.
House prices in Australia have risen sharply over the past year.
Median house prices have been rising at an annualised 10% pa pace since the mid-1990s.
We believe that the wealth effect of increased housing prices has led to the continuation of strong private demand in the economy, despite slowing in business investment in recent years. Also, after six years of solid increases in house prices, the prospect of flat and possibly falling house prices is likely to result in a weaker trend in consumption growth.
For retail trade, history points to an eventual stalling in demand as interest rates rise.
We find that while Australian house prices are expensive, we do not believe there is a bubble. Current prices (excluding Melbourne) are generally within the bounds of their normal cyclical peak."
