Economist flags 'major downside risk' as housing activity peaks

BetaShares chief economist David Bassanese said early tests of the resilience of the Australian economy will be a feature this week, with the release of Westpac’s consumer confidence data and fresh figures on new home sales from the Housing Industry Association.

“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,” Mr Bassanese said.

“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.

“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, released yesterday.

Westpac chief economist Bill Evans noted that it is the lowest reading since September 2015.

"With limited domestic news during the holiday season, consumers appear to have been mainly impacted by the spate of negative news on the international front and the spillover effect on financial markets," he said.

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

Commenting on the results, which were released earlier this month, AMP Capital chief economist Shane Oliver said building approvals overall 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."

However, he added that there is little risk of a significant downturn in the housing market.

“We are just closing the gap,” he said.

[Related: Property risks rising with new supply pipeline]