percentage point – Michmutters

Tag: percentage point

Categories
Business

Construction industry collapse: Sign sector is heading for a bust

Construction industry collapse: Sign sector is heading for a bust

In the history of Australia, the nation’s economy has often been defined by booms and busts. From the 1890s depression driven by a collapse in wool prices and housing price crash, all the way through to the current boom in thermal coal prices, Australia’s economy has thrived and dived on boom and bust cycles.

In October 2019, the Reserve Bank warned of yet another boom that would turn to a bust, this time in the construction sector. At the time RBA Deputy Governor Guy Debelle made a speech to warn of falling activity in the industry, stating that it would subtract around 1 percentage point from GDP growth and that there was some risk the decline could be even larger.

Around that time investment bank UBS was equally concerned, warning that construction job ads were pointing to around 100,000 jobs potentially being lost in the industry as activity levels dropped from its peak.

With every boom comes a bust

Looking at the data, it’s clear why Debelle and the RBA were concerned about the direction of the industry. Between April 2012 and November 2017, the construction sector underwent an enormous boom following a period of rapidly falling activity resulting from the end of projects driven by the Rudd and Gillard government’s first homeowner grants. During this period dwelling approvals rose by 119 per cent and the construction sector enjoyed a period of strong growth even while other parts of the economy struggled.

But the continued strength of the construction sector was not to be.

Between November 2017 and the pre-pandemic lows of January 2020, dwelling approvals fell by 41.5 per cent. Naturally in time, dwelling commencements also fell from their peaks, dropping by 31.8 per cent between March 2018 and September 2019.

The pandemic effect

At the start of 2020, it was all very much looking like the RBA’s concerns about the future of the construction sector were justified. But when the pandemic arrived on Australia’s shores just a few months later everything changed.

In just a few months the fortunes of the construction sector changed dramatically, from a slowly dwindling pipeline of projects to unprecedented levels of government support for the industry.

From June 4 2020, the federal government’s ‘HomeBuilder’ program provided a $25,000 grant for eligible new builds and large scale home renovations on homes that met the government’s criteria. According to the federal Treasury as of March 2022, HomeBuilder had cost a total of $2.1 billion and received more than 137,000 applications (113,113 for new builds and 24,642 for renovations).

According to an analysis from Master Builders Australia, the value of building work supported by HomeBuilder amounted to $41.6 billion.

Various state and territory government grants for new homes also helped increase the number of new homes under construction to all time record highs.

Meanwhile, as the way Australians live and work changed dramatically as a result of the pandemic, demand for home renovations surged. According to the ABS during 2021 Australians spent $12.3 billion on renovating their homes, up 33 per cent compared with 2020.

Amid all this stimulus and pandemic driven activity, the construction sector has at times suffered from materials and labor shortages as it attempted to keep pace with rising demand.

But with HomeBuilder and various state and territory grants now in the rear view mirror, a concerning picture of the future is now slowly emerging.

Concerning signs

Since peaking in March 2021, dwelling approvals have failed by 29 per cent as of the latest data for June this year. After hitting an all-time record high in June 2021, dwelling commencements are following approvals down, falling 27.5 per cent as of the March quarter.

While a relatively strong pipeline of work remains and tradies are still in huge demand across much of the nation, the various forward looking indicators for the industry are showing similar concerning signs to those displayed in 2019.

However, unlike 2019 the broader economic circumstances are quite different and there are risks that the fortunes of the construction sector could deteriorate more swiftly. With mortgage rates currently rising at their most rapid relative rate in Australian history and inflation tipped by Treasury to hit 7.75 per cent by the end of the year, in time Australians may be much more reticent to take the plunge and pull the trigger on building a brand new home.

In 2020 the construction sector became the latest example of the “Lucky Country’s” good fortune coming to the rescue at exactly the right time. But now with a very different backdrop of economic circumstances, the sector has become even larger and activity levels even higher than the previous peaks, from which the RBA and UBS warned that the falls from could prove quite challenging.

Ultimately, despite the deteriorating forward looking indicators it is still very much early days for the construction sectors eventually slow down. More government stimulus or social housing construction may yet still come to somewhat fill the gap, but whether the sectors good fortune will hold, remains very much up in the air.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator

.

Categories
Business

RBA interest rates: Westpac decreases fixed rates as three big banks pass on full 0.50 percentage point rate hike

RBA interest rates: Westpac decreases fixed rates as three big banks pass on full 0.50 percentage point rate hike

Westpac Bank has made a surprising move, choosing to spare some customers from escalating price hike pain.

The big bank has announced it will be decreasing its four-year owner occupied fixed interest rate by one per cent, down to 4.99.

Westpac is the third of the big banks to announce its rate changes following the Reserve Bank of Australia’s decision to increase the official cash rate by 0.50% per annum (pa) on Tuesday.

The big bank has unsurprisingly followed its rivals the Commonwealth Bank and ANZ in increasing its variable home loan interest rates.

The interest rate changes will come into effect for new and existing home loan variable rate products on Thursday, August 18.

Earlier today, ANZ joined CBA in announcing it will be passing on the hike to variable rate mortgages and one savings account by the full 0.50 percentage points.

The major bank said its up-scaled up mortgage rates will come into effect for both new and existing customers from Friday, August 12.

The lowest variable rate will now be increased to 3.69 per cent – ​​just under that of CBA, which pumped up its lowest rate to 3.79 per cent.

Both rates are at three-year highs.

The ANZ decision also included increasing the rate on its new ANZ Plus Save account by 0.50 percentage points to 2.50 per cent for balances up to $250,000, which will come into place on Monday.

The move came just hours after Australia’s biggest bank, the Commonwealth Bank, announced it will pass on the full 0.50 percentage point hike to its variable home loan customers and some savings customers.

CBA will bring its occupier principal and interest standard variable home loans rate to 5.8 per cent.

Uncharacteristically, Australia’s other big banks have been slow off the blocks following the RBA’s decision on Tuesday, with CBA’s competitors Westpac, NAB and ANZ yet to make their announcements.

Mortgage rates for new and existing customers at CBA will rise by 0.50 percentage points on August 12, with investor rates rising to 6.38 per cent.

Research director at RateCity.com.au Sally Tindall said while the CBA’s decision comes as no surprise, for customers who are already feeling the heat, this fourth hike is a “difficult pill to swallow”.

“From next week, CBA’s basic variable rate will hit a three-year high of 3.79 per cent – ​​a huge increase from three months ago when it was just 2.19 per cent,” she said.

For an owner-occupier with $500,000 debt and 25 years remaining, the 0.5 percentage point hike means they will see their monthly repayments rise by $140.

To ease the strain, Commonwealth Bank is cutting its lowest four-year fixed rate to 4.99 per cent – ​​a drop of 1.60 percentage points.

This special rate, which comes into play on Friday, is strictly for owner-occupiers paying principal and interest on a package rate ($395 annual fee) for a limited time.

While Ms Tindall said the “whopping cut” will make it the lowest in its category, she warned it may not necessarily be a good idea.

“People should think carefully about whether they want to lock up their mortgage for the next four years because there can be significant consequences if they decide to break their loan,” she said.

For those with a NetBank Saver account, who will see the full rate hike, the research director said an ongoing rate of just 0.85 still won’t cut it.

“In this market, where we could see ongoing rates over 3 per cent, these savers are still getting paid peanuts,” she said.

But Ms Tindall said there are signs things could be turning around.

“On Tuesday, Macquarie announced it was making significant cuts to its fixed rates and now CBA is following suit,” she said.

“We expect this will trigger further fixed rate cuts from other lenders in response to both evolving market expectations and competition among the banks.”

Read related topics:westpac

.