Home building sector recovery gaining pace

A RECOVERY in the home building sector seems to be taking hold, with approvals for houses gaining for the fifth month in a row.

Approvals for fully-detached houses rose 2.5 per cent in May, seasonally adjusted, Australian Bureau of Statistics figures show.

HSBC Australia and New Zealand chief economist Paul Bloxham said the gain was a positive sign for the housing sector.

It shows that other parts of the economy, besides mining, are getting stronger, he said.

"We held onto the gains from the previous month and the detached house numbers are rising solidly," he said.

"This is a sign of gradual rebalancing of growth in the Australian economy."

Total building approvals for new homes fell 1.1 per cent across Australia in May, which was mostly in line with market expectations.

That figure was weighed down by a 9.8 per cent fall in approvals for other dwellings, which includes apartments and townhouses.

Mr Bloxham said the other dwellings category is volatile from month to month, and not much should be read into the fall in that category.

He still expects the Reserve Bank of Australia to make one more cut to the cash rate by the end of the year.

"That may be all they need to do because of the fall in the Aussie dollar," he said.

JP Morgan senior economist Ben Jarman said building approvals were improving, but not enough to balance out the easing mining investment boom.

"Those areas of the economy that are sensitive to rates, like building, are starting to pick up," Mr Jarman said.

"The question is, is it picking up enough from an overall growth point of view to offset the drags that are coming through in gross domestic product from your fading mining investment and the like.

"We think ultimately it will fall a bit short of what's required to fully offset the drags that are coming through.

"Housing alone certainly won't make up the difference, other things are going to have to rise too, like non-mining business investment, and that's where the signs are still sort of patchy."

Mr Jarman said lower interest rates were helping building approvals, along with state government first-home buyer incentives favouring new building activity over existing home purchases.

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