Housing recovery underway

Home owners rejoice.

The Australian property market is expected to recover, supported by record low interest rates, strong population growth and continued government support, in the form of home owner’s grants.

That could see house prices rise, and possibly get consumers spending again, kick-starting growth in our struggling retail industry. It could also provide a boost to our economy – obviously something that the Reserve Bank of Australia is trying to do through low interest rates.

We could even see another interest rate cut as soon as early August, to give the housing sector another push forward.

Building products group CSR Limited (ASX:CSR) has already predicted a sustain recovery in the housing construction sector, led by NSW and Western Australia. Speaking at the company’s AGM on Thursday, managing director Rob Sindel said, “We are confident we are seeing the start of a sustained recovery in housing construction, particularly in the states with strong population and job growth.”

Housing finance numbers out today showed the number of home loans rose 1.8% in May and comes on the back of a rise of 1.9% in April, in a clear sign that the Reserve Bank’s rate cuts are having an effect, albeit at a slow rate.

CSR is predicting housing starts to increase from 145,000 to 147,000 in the 2014 year, after hitting rock bottom in 2012. For building materials and supplies companies like Adelaide Brighton (ASX:ABC), Boral Limited (ASX:BLD) and Brickworks Limited (ASX:BKW), CSR’s confidence and the housing data should give the sector a lift.

But it’s not all cookies and milk. Builders are reporting that they are being stifled by skills shortages, compliance costs and banks that are reluctant to lend. Fingers are also being pointed at local and state governments, with around 45% of tax revenues now coming from property, with non-stamp duty taxes growing at 10% each year over the past decade. That’s well in excess of house price growth.

Foolish takeaway

Australia needs to build around 200,000 homes each year to accommodate our growing population. The annual rate of construction is currently just 150,000, suggesting the demand for houses is going to increase, giving home builders and building materials companies a much needed boost.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.


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