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New home build approvals shoot up

New home and renovation build approvals shot up 3.1% in February, exceeding economists’ more conservative estimates. In all, councils approved 13,721 licenses in February versus 12,963 the previous month (seasonally adjusted). On a year over year basis, approvals rose nearly 13%.

Who stands to benefit

In part the trend seems to speak to a lag between approvals and home sales, as new home sales fell some 5% in the same month. Certainly lead times are long, or as AV Jennings (ASX: AVJ) chief executive Peter Summers put it, “In most markets in which AVJennings operates, with the exception of Victoria, underlying fundamentals are strong… There are signs that some markets are starting to improve although this is taking time to translate into transactions.” Meanwhile fellow homebuilder Stockland (ASX: SGP) presses on, announcing yesterday the beginning of a new $1 billion residential community project in southwest Sydney.

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The trend should prove a boon to manufacturers and suppliers of building materials, such as Boral Limited (ASX: BLD) and James Hardie Industries (ASX: JHX) which seem poised to continue the share-price recovery they’ve enjoyed in the last twelve months. Both companies have significantly outperformed the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) over this period, as demonstrated in the chart.

Are rate cuts dead?

The lift points to the efficacy of Reserve Bank of Australia rate cuts intended in part to aid the struggling construction and residential building sectors. But for the last three months, the RBA has opted not to cut rates further — which may signal an end to rate cuts for the foreseeable future. Strong retails sales also point to the unlikelihood rates will be further cut.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.

 

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