This goes to show that things do not go up forever.
From AFR.
Building slowdown signals end to long boom Jan 8 Morgan Mellish and Robert Harley
Looking down...building work is expected to drop. Photo: VIRGINIA STAR A record drop in building approvals in November has added to expectations that the five-year housing boom is coming to an end.
Total dwelling approvals slumped 25.6 per cent, reversing a large jump in the previous month, as the brakes were finally applied to one of the strongest sectors of the economy.
The larger than expected fall left the monthly approvals figure at its lowest level since February, confirming forecasts that the market is finally cooling.
While activity is still healthy, industry participants in several states said it was now definitely lower than the past year or so, particularly for the period since Christmas.
Peter Hayes, the managing director of one of Victoria's biggest home builders, the Henley Properties Group, said inquiries since Boxing Day were about 30 per cent to 40 per cent down on a year ago.
Harry Triguboff, managing director of Meriton Apartments - the nation's most prolific apartment developer - agreed that inquiries were down, but said the market would bounce back after the holiday season.
"The agents who made so much money last year are still on holiday," Mr Triguboff said.
Approvals for privately owned houses - considered the best guide to underlying trends in housing activity - fell 11.6 per cent during November to their lowest level since June 2001.
Meanwhile, approvals for medium density developments, which have skyrocketed during the boom, fell 45.2 per cent to the lowest level in four months.
While approvals for houses are now trending downwards, approvals for medium-density developments are still rising, adding to concerns that an oversupply could emerge in that sector.
Industry watchers say some of these medium-density projects may be shelved in the coming months as investor demand for units and apartments eases.
UBS Warburg economist Scott Haslem said: "[Yesterday's] data would appear to mark the beginning of the correction in housing activity we have been expecting for some time."
After the housing market contributed about one-third of the economy's growth in recent years, economists expect its slowdown will reduce Australia's economic growth by up to 1 percentage point in 2003.
Last financial year, construction work began on about 165,000 new houses.
That figure is expected to drop by about 10 per cent to about 147,000 in 2002-03.
The slowdown - which will affect industries such as construction, manufacturing and retailing - will help limit growth to about 3 per cent, down from 3.8 per cent in 2002.
As a result, most observers believe the Reserve Bank of Australia will leave the official cash rate on hold at 4.75 per cent for the time being.
"The November drop will allay fears that the new housing market is heading into dangerous territory and should give comfort to the Reserve Bank," Wilhelm Harnisch, chief executive of Master Builders Australia, said.
However, not everyone is convinced the market is slowing. Some economists pointed out that, based on an average for October and November, approvals are still near boom-type levels.
Commonwealth Bank chief economist Michael Blythe said: "While many commentators are calling the turn, we suspect that we are not quite there yet.
"It is clear that house approvals are trending down, but the direction of the medium/high-density segment is unclear."
While building approvals are slowing, construction work is still proceeding apace.
In the detached-house market, for example, builders expect the slowdown in approvals will not be seen in reduced work until at least March.
"We are still struggling for sub-contractors," Lev Mizikovsky, executive director of Queensland's largest detached home builder, Tamawood, said.
Where the slowdown is beginning to show is at the beginning of the pipeline, with a number of planned projects being deferred and an increasing number of sites up for sale.
In Melbourne, at least five apartment projects have been delayed or abandoned when required levels of pre-commitments were not obtained, while one has been put on hold in Brisbane.
HSBC economist Anthony Thompson cautioned that the medium-density investor market was now facing oversupply, high vacancy rates and weak rental yields.
"This segment of building approvals should enter a consistent downtrend in the near term and continue to weaken through 2003," Mr Thompson said.
JP Morgan chief economist Andrew Pease said: "Looking through the volatility, there are signs that the construction cycle is turning down."
