Construction loans dive as building approvals fall to lowest this year

Australia’s builders are having a hard time lately, with approvals for new home construction down to levels last seen in October 2009.

Mortgage lenders and mortgage brokers are not getting any joy either as building approvals fell in May, according to the Australian Bureau of Statistics.

In the year to May, building approvals were up a quarter on last year, which had, as you recall a terrible time with property investors leaving for the stock market greener pastures, and until the First Home Owners Grant was trebled for new home construction for a short time.

The one ray of sunshine to pierce the gloomy building approval scene was that private home approvals were up. This contrasts with a 20% fall in apartments and townhouse [medium and high density housing development] approvals at the same time, making things look worse that they might be.

You may recall that the Reserve Bank of Australia (RBA) raised the official interest rate 4.5 per cent in May. This was the sixth interest rate increase since October 2009.

This has raised mortgage stress in the mortgage belts in the capital cities of Australia and a lot more established homes are coming onto the market as a result.

The writing was already on the wall for the European Financial Crisis, and the US still has to face up to the fact that it has a similar debt level problem. I feel that [yet again] the Reserve Bank was too trigger happy in raising rates, as a means to contain inflation, and has overshot the mark. Its continued concern on house price rises was unfounded as they had been falling for some time, without the last  two mortgage rate increases needed for this. Its stated reason of getting back to “normal rates” is silly. The future will not be a repeat of the past, and people now are carrying too much debt.

So maybe the real agenda of the RBA was to actually dampen the housing market and credit markets to the extent that is has, in order for people to get acclimatised to the prospect of lower wages in the future.

This is what Europeans are facing, and bringing down national debts to sustainable levels is what the US and Australia will have to do as well.

If consumer demand falls in Europe and the US, China will not be buying as much iron and coal from Australia. China’s housing market has hit the skids. We can’t let that happen to our home builders.