Australian Home Building, Borrowing Surged

Australia’s home-building approvals surged seven times as much as economists’ forecast and borrowing increased in September, adding to speculation the central bank will raise interest rates next week.

The number of approvals to build or renovate houses and apartments climbed 6.8 percent from August to a 14-month high, the Bureau of Statistics said today in Sydney. Lending to consumers and businesses rose a more-than-expected 1.2 percent in September, according to central bank figures.

Bond yields surged as the reports reinforced expectations Reserve Bank Governor Glenn Stevens will increase borrowing costs for a second time this year on Nov. 7. Stevens may raise the benchmark interest rate to the highest in 11 years to contain a pickup in inflation fueled by the economy’s 16-year expansion.

“It’s more evidence that households are resilient to rising interest rates and gives more weight to arguments that further rate rises are required,” said Matthew Hassan, senior economist at Westpac Banking Corp. in Sydney.

The Australian dollar rose to 92.15 U.S. cents at 12:36 p.m. in Sydney from 92.08 cents immediately before the reports were released. The currency reached 92.72 cents on Oct. 29, the strongest since May 1984. The yield on the benchmark 10-year government bond climbed 2 basis points to 6.16 percent.

Sales of newly built houses and apartments surged 9.9 percent in September from the previous month, the Housing Industry Association also reported today, further signs of the strength of the A$1 trillion ($922 billion) economy.

Resilient Economy

“Today’s data confirms the resilience of the economy despite an interest-rate increase in August and the intensifying global credit turmoil,” said Su-Lin Ong, senior economist at RBC Capital Markets in Sydney. “We expect a 25-basis-point rate hike next week.”

All 24 economists surveyed by Bloomberg News this week forecast the Reserve Bank of Australia will increase the overnight cash rate target to 6.75 percent next week.

Speculation that policy makers would boost borrowing costs again intensified after a report last week showed a surge in energy and food costs stoked an acceleration in inflation in the third quarter.

The weighted-median measure of core inflation climbed 1 percent from the previous three months, the biggest increase since 1991. The underlying inflation rate rose 3.1 percent from a year earlier, beyond the upper limit of the central bank’s 2 percent to 3 percent target range.

The median estimate of 23 economists surveyed by Bloomberg News was for a 1 percent increase in building approvals in September after they declined a revised 1.8 percent in August. Approvals were 4.2 percent higher than a year earlier.

Home Building

Approvals to build private houses rose 2.5 percent in September, the biggest increase in a year, today’s report showed. Approvals for apartments or renovations jumped 13.8 percent.

Today’s housing indicators suggest consumers have shrugged off the central bank’s August interest-rate increase and also are confident the Australian economy can weather fallout from the U.S. housing recession and resulting credit market slump.

“This suggests the rate hike and credit-market turmoil in August has had little impact on plans for residential construction,” Westpac’s Hassan said.

China’s appetite for commodities have stoked a mining boom in Australia that is flowing through the economy by driving jobs growth and wage increases, leading to an increase in consumer spending. At the same time, a housing shortage and rising property rents are encouraging investors to buy real estate to increase their returns.

Rental yields are rising amid “historically tight vacancy rates,” according to the Real Estate Institute. The cost of renting a two-bedroom apartment in Darwin rose as much as 36 percent in the 12 months ended June, while vacancy rates have fallen below 1.5 percent in Sydney, Melbourne and Adelaide, the institute said.

Australian Building, Borrowing Point to Interest-Rate Increase
By Victoria Batchelor and Shamim Adam | Bloomberg News