Australia building homes at record pace as rates fall

[SYDNEY] Approvals to build new homes in Australia surged to record highs in January as more people embrace apartment-style living, evidence that record low interest rates are helping housing to fill the hole left by a cooling mining sector.

The Reserve Bank of Australia (RBA) holds its March policy meeting later on Tuesday amid much speculation it could cut rates by a further quarter point to 2 per cent, which would mark the second easing in as many months.

A Reuters poll of 29 analysts found 15 tipped a cut while 14 looked for a pause this week. Investors are also split with interbank futures 0#YIB: implying a 54 per cent chance of an easing, though they remain fully priced for a move to 2 per cent by May.

Many argue a jolt is needed to reinvigorate an economy that has been running below trend for more than two years, pushing up unemployment and dragging down inflation.

Low mortgage rates have certainly worked their magic on housing with approvals to build new homes jumping 7.9 per cent in January, when analysts had expected a small decline.

Approvals to build apartments surged almost 20 per cent in January, surpassing those for detached houses for the first time in history.

Australians have traditionally had a passion for houses with large gardens, but rising costs and a desire to live in inner cities is changing all that.

The pick-up in home construction is badly needed to compensate for a retreat in mining investment as sharply lower resource prices force widespread cutbacks in the industry.

Fortunately the hundreds of billions already spent on expanding mining production has led to a huge increase in export volumes which is flattering the country's trading accounts.

As a result, Australia's current account deficit shrank to A$9.6 billion in the fourth quarter of 2014, well below market forecasts of A$11 billion.

Net exports also added a healthy 0.7 percentage points to gross domestic product (GDP) in the quarter, according to data from the Australian Bureau of Statistics.

The GDP report is due on Wednesday and analysts have been looking for a rise of around 0.6 per cent in the quarter and 2.6 per cent for the year.

The latter would actually be faster than what the United States managed in 2014, but would still be sub par for a nation that used to average at least 3.25 per cent.

REUTERS