The uptrend in housing construction is still in place, judging from the industry data, government statistics and sales figures of housing builders. Hot sales prices in major cities keep the property market in the news week by week. The RP Data – Rismark Home Value Index was reported to show a 10.6% rise in capital city prices over the past year, with Sydney and Melbourne the hottest markets.
When established detached houses become harder to afford, price increases motivate buyers to have houses built or opt for unit dwellings. The RBA held interest rates steady this month and the Aussie dollar has not fallen below $0.90 to the US$. This situation may keep interest rates lower for some time if the Aussie stays high.
The Housing Industry Association (HIA) together with the Australian Industry Group released February figures indicating house construction continued to rise in line with the new construction orders over the past five months. Apartment building showed a little contraction, but the rate of decline was lessening.
The monthly trend estimate of house construction from the Australian Bureau of Statistics (ABS) was up 1.9% in February, but the seasonally adjusted estimate was down 2.1% for the month. For private sector housing excluding houses, the trend estimate fell 0.7%.
Commercial and residential property developers Stockland Corporation Ltd (ASX: SGP) and Australand Property Group (ASX: ALZ) are seeing residential construction rising. Stockland's residential segment operating profit was up 39% in the interim period.
Australand had a slightly lower full year EBIT from its residential division compared to FY2012, yet sales activity was up, driven by stronger pre-sales. FY2014 results should have many of its current contracts in hand contributing to earnings.
Aside from construction, Stockland recently increased its shareholding in Australand to 19.9% after another shareholder, CapitaLand Limited, sold its total 39.12% stake in the company on the market. Another portion of the available shares were picked up by AMP Limited (ASX: AMP). Its stake stands at about 14%.
Australand hit a new 52-week high this week of $4.29 a share. Its current price is $4.22 and it has a dividend yield of 5.6%.
Foolish takeaway
As readers of my previous articles about the housing construction industry will know, I believe that the housing market is in the early part of its industry cycle right now, so investors still have opportunities to make gains on home builders.
Lower interest rates keep the upward momentum going. Housing markets start to sputter out after a series of interest rate hikes make it increasingly expensive to buy property. Using that as a very general indicator, we may have some time before the peak is reached.
