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Housing decline poses 'major downside risk'

By James Mitchell
28 January 2016 | 5 minute read
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As consumer confidence falls and national housing activity passes its peak, one leading economist has expressed his concern for the economy.

BetaShares chief economist David Bassanese said that while falling petrol prices and solid employment growth should support confidence, households are likely to have been shaken by the weakest early January share market performance in history.

“Similarly, chances are that new home sales have slipped further in November, confirming other reports suggesting the peak in home building activity is well and truly past,” he said.

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“I have long been concerned that the peak out in housing activity poses a major downside risk for the economy heading into 2016.”

Consumer confidence fell by 3.5 per cent in January, according to the Westpac-Melbourne Institute Index of Consumer Sentiment.

Meanwhile, Australian building approvals fell by 12.7 per cent in November, driven by a 24 per cent decline in approvals for townhouses and apartments.

Commenting on the results, which were released earlier this month, AMP Capital chief economist Shane Oliver said building approvals look to have peaked.

“Peaking building approvals point to slowing growth in housing construction in the year ahead,” Mr Oliver said.

“This is occurring at the same time that the positive wealth effect for consumer spending from rising property prices in Sydney and Melbourne is fading,” he added.

“Both mean that the contribution to economic growth from housing is set to slow in the year ahead.”

Mr Oliver’s comments were echoed by HSBC Australia chief economist Paul Bloxham, who said the housing sector’s contribution to economic growth would be minimal this year as the market continues to cool.

"The impact of property is waning," Mr Bloxham said.

"The housing boom, which had been the first stage of the rebalancing act, appears to be cooling, but the services sectors have now taken the growth baton and are driving job creation."

[Related: Housing correction forecast for 2016]

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