New housing trends tell the economic tale

Housing data in the US and Australia released today tells a tale of two economies moving along very different trajectories.

In Australia, the number of new houses and apartments approved for construction increased 6.8% in the month to September and is 1.3% up on this time last year, a result well above market expectations, according to Australia Bureau of Statistics figures released today.

The number and value of new home sales also rose by 9.9% in September, Housing Industry Association data shows, although some of that strong result is a recovery from weaker figures earlier in the month.

You couldn’t say the housing construction sector in Australia is booming – and the skills shortage and the affordability squeeze are big factors, meaning it is unlikely to do so in the near future. Even so, however, the broader trend is clearly for increasing housing values and growth.

The difference to the US couldn’t be more stark. The sub-prime fiasco there has shattered confidence in the housing sector, and now new figures released today show that house values are continuing to fall across the country.

The S&P/Case-Shiller index of 20 metropolitan areas shows house prices fell an average of 4.4% in August compared to last year, with 15 of 20 areas reporting lower prices. Home prices as measured by the index have fallen every month since the beginning of 2007.

Although many people now argue that Australia’s economic fate is more closely linked to China than the US, there is no question that events in the world’s biggest economy do have an effect here.

The weak US housing results make it more likely that interest rates will be cut there. Given that rates are moving in the opposite direction in Australia, that means the Australian dollar is likely to continue upwards from its already high price (at 12.05pm today, US92.21c).

And our sharemarkets are connected, too. The US Dow Jones lost value overnight after Stan O’Neal, the chief executive of giant investment bank Merrill Lynch, resigned after presiding over losses of $US8 billion because of – you guessed it – the sub-prime crisis. As a consequence, Australia’s S&P/ASX 200 started sharply down, although it has since recovered to 6748.6 by 12.05pm, virtually level pegging with its opening level.

As important as China is, the connections between the Australian and US economies remains very real.