Interest rate cuts fail to lift frail housing
A national building and construction survey released on Monday shows industry conditions have worsened since 2011, despite a run of interest rate cuts.
The survey of more than 400 builders and contractors suggests 2013 is unlikely to be the year when the industry lifts from its current downturn.
"Interest rate cuts over the past year appear to have failed to boost the confidence of new home buyers," Master Builders Australia's chief economist Peter Jones said.
He said the Reserve Bank had pointed to the building industry to help boost the non-mining sectors of the economy. But the survey suggested more stimulus in the form of first home owner grants and interest rate cuts was needed to achieve that goal.
"The most disturbing finding from this quarter's survey is that builders' profits are declining as the pipeline of work dwindles," he said.
The survey's index that measures builders' level of business activity fell again in the December quarter from 47.4 to 45.2, below the neutral 50 mark that indicates satisfactory levels.
It continues a two-year decline that puts the index below levels recorded during the 2008 global financial crisis.
And while the building industry struggles, fewer people believe house prices will rise this year, although they still think it's a good time to buy a home, another survey shows.
Just 26 per cent of consumers believe house prices will go up this year, a drop of 8 per cent from the last Westpac-Melbourne Institute Consumer House Price
Frequently Asked Questions about this Article…
A national survey of more than 400 builders and contractors found rate cuts over the past year did not boost new home buyer confidence. Master Builders Australia's chief economist Peter Jones said buyers remain cautious — helped along by rising unemployment — so interest rate cuts alone haven’t driven stronger demand.
The survey shows industry conditions have worsened since 2011. The builders' business activity index fell from 47.4 to 45.2 in the December quarter, below the neutral 50 mark and continuing a two‑year decline to levels below those seen in the 2008 global financial crisis.
Yes — the survey flagged declining builders' profits as the pipeline of work dwindles. For everyday investors, shrinking profits and lower workloads can signal weaker construction activity and slower growth in housing‑related sectors.
The Reserve Bank had hoped the building industry would help boost non‑mining sectors, but the survey suggests that, without additional stimulus such as first home owner grants or further support, the building sector is unlikely to fully offset the mining slowdown.
No — another survey cited in the article found only 26% of consumers believe house prices will increase this year, an 8% drop from the previous Westpac‑Melbourne Institute reading.
According to the surveys mentioned, many consumers still think it’s a good time to buy a home even though fewer expect prices to rise this year. That suggests some buyers see value or longer‑term opportunity despite near‑term caution.
Rising unemployment makes prospective home buyers more cautious, which reduces demand. The article highlights buyer caution driven by unemployment as a key reason the housing sector remains subdued despite rate cuts.
Monitor the builders' business activity index (the 50 neutral mark), builders' profit and pipeline trends, consumer house price expectations, changes in interest rates, announcements on first home owner grants, and unemployment data — all factors the article links to housing sector strength.
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