Housing construction set to strengthen

The number of home loans approved in January was virtually unchanged, official figures show. Source: AAP

HOUSING finance failed to grow for a second straight month in January, but economists are encouraged by a rise in the number of loans approved for construction of new homes.

The number of home loans approved in January was 51,054, almost unchanged from 51,045 approvals in December, the Australian Bureau of Statistics said on Wednesday.

JP Morgan economist Tom Kennedy said a 5.8 per cent rise in loan approvals for the construction of new homes in January was encouraging.

"From a growth perspective that's what you want to see because you want construction activity picking up, which is what really matters for the overall GDP (gross domestic product) picture," he said.

"Construction activity will have a knock on affect for employment, not just in the construction sector, it's broader than that it's quite a large component of the Australian economy."

Mr Kennedy said the Reserve Bank of Australia would like to see construction activity pick up and purchases of established dwellings fall.

"That would take some heat away from house prices," he said.

National Australia Bank senior economist Spiros Papadopoulos was also not too concerned about the flat result for total housing finance in January.

"We have seen a strong upward trend over the past year and given low interest rates will be around for most of this year, we expect these series to bounce back in coming months," he said.

"It's encouraging that we have seen small growth in the first home buyers, their ratio of owner occupier approvals has risen to 13.2 per cent from 12.7 per cent.

"That had been trending lower."

St George Bank senior economist Jo Horton said low interest rates were helping to boost demand for housing.

"The broader picture points to solid owner-occupier demand, at least among upgraders," she said.

"Meanwhile, investor demand remains very strong, despite a weaker month in January.

"The strength of the housing market, and in particular investor demand, confirms that low interest rates are working to support the economy and supports our long held view that the RBA is done cutting rates in this cycle.

"Low interest rates should continue to support housing demand and housing activity well into this year."

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