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Housing market staging slow recovery

Home prices are on the rise, but the going is still tough.

According to the Australian Bureau of Statistics (ABS), house prices rose 0.3% in the September quarter. The ABS also adjusted its March and June quarter results. March went from being down 1.1%, to unchanged, while the June quarter was revised up slightly to 0.6%. Economists had expected a quarterly gain of 1%, instead of the 0.3% we got – mind you, 20 out of 26 of economists had also predicted the RBA would cut rates today. That 0.3% rise could also be revised up or down over the next couple of quarters.

Related: Housing construction hits 10-year low

Darwin and Perth continue to lead house price rises, with gains of 8.2% and 4.4% respectively over the past year, while Melbourne and Hobart both fell more than 2%, and Sydney and Brisbane showed small increases.

Australia’s largest mortgage broker, AFG, processed $3.1 billion of mortgages in October, its highest volume for any October on record, and any month since March 2009. Perhaps surprisingly, only 35% of those loans were refinancing loans. AFG’s general manager of Sales and Operations, Mark Hewitt said “We’re not seeing a surge of confidence across the country, but different categories of borrowers in different states are feeling more comfortable about taking on loans.

That should give building materials companies, home builders and building supplies companies a shot in the arm, after experiencing what has been described as the “worst construction market in the last 20 years”. That has seen the shares prices of companies like Boral Limited (ASX: BLD), CSR Limited (ASX: CSR), Brickworks Limited (ASX: BKW) and GWA International (ASX: GWA) crunched since the beginning of the year, compared to the market, which has risen over 10%.

While house price growth is fairly low, at least it’s growing in most states and territories. Add that to higher than expected growth in retail sales, and we may see some increase in consumer confidence and perhaps further growth in economic activity.

The Foolish bottom line

Perhaps the RBA has also seen these recent signs of recovery – hence the reason to hold the official cash rate at 3.25%, and its comments that inflation will be consistent with its target (between 2-3%) over the next one to two years.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.  The Motley Fool ’s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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