With the first half of FY2014 and the holiday season done and out of the way, we're getting more signals that housing will stay up longer. The RBA may not have cut rates yet, but some in the financial markets are saying they will have to soon. So we can expect low interest rates to be here with us longer.
As soon as the central bank made public its decision, the Aussie dollar jumped up to $0.895 to the US$, and the bank had spent time before trying to talk it down, because a weaker currency will take some of the heat off it about moving the cash target rate lower than 2.50%.
We can see that housing construction is still expanding from the latest Performance of Construction Index (PCI) release put out by the Australian Industry Group and the Housing Industry Association. Houses are performing better than units, which slipped into contraction after spending a number of months above the 50 index level dividing expansion and contraction.
This is in line with earlier data from the Australian Bureau of Statistics showing building approvals were still on the rise compared to the previous year's December quarterly figures.
Then, too, the quarterly pace compared to the previous period had come down, so watching the trend over this next quarter will give a clearer idea of how construction volumes may change.
Investors will want to keep an eye on builders and developers like Australand Property Group (ASX: ALZ), Mirvac Group (ASX: MGR) and Stockland Corporation Ltd (ASX: SGP) for updates on the number of contracts signed and settled sales for houses to gauge construction.
Stockland reported in its September quarter that it had its strongest net deposit result in three years for residential housing. Initial deposits upon signing a building contract can give us an indication of the pipeline of work coming ahead.
Another developer is Peet Limited (ASX: PPC), the $607 million WA-based company which also operates in NSW, VIC and QLD. In 2013, NPAT before abnormals recovered to $15.5 million after going through a low of $5.2 million in 2012.
The share price also recovered during that time, rising from as low as $0.64 in mid-July 2012 to $1.40 currently. The company said at its November AGM that it saw 2013 as a cyclical low point for earnings. It is taking advantage of the stronger revenue by paying down debt by $100 million.
It expects to see higher earnings in FY2014, weighted more so to the second half. Also, it intends to reinstate its dividend for FY2014 and beyond, targeting a 50% payout ratio.
Foolish takeaway
Just as the seasons change, and there is not one day when suddenly it feels like the previous season is over, the updates and trade data will see-saw back and forth as the economy moves into a higher gear.
Investors in the know will start staking their positions since housing and its related construction is cyclically driven. Starting at what seems the trough is sometimes difficult to gauge, but property markets always have to start out with low interest rates to get things going and easier credit maintains the pace.
