SYDNEY (Reuters) - Australian home prices posted their biggest monthly jump in 2-1/2 years in September, with the dominant markets of Sydney and Melbourne bouncing strongly, but approvals to build new homes collapsed to the lowest since 2013.
Tuesday's grim building approval numbers reinforced expectations that the Reserve Bank of Australia (RBA) would cut interest rates by another quarter-point at a policy meeting later in the day (0430 GMT), knocking the local dollar <AUD=D3> to one-month lows of $0.6733.
Building approvals fell 1.1% in August, less than a sharper 10% slide in July but against market expectations for a bounce of 2.5%, data from the Australian Bureau of Statistics (ABS) showed.
Total building approvals are at the lowest level since January 2013 and 44% below their November 2017 peak, in a blow to what had been one of Australia's stronger sectors.
"These data indicate that we're yet to see a bottom in building approvals and suggests increased risk of a deeper residential construction downturn," said Kaixin Owyong, Sydney-based economist at National Australia Bank.
Worried about a broader economic slowdown, rising unemployment and tepid inflation, the RBA chopped the cash rate in back-to-back meetings in June and July to a record low of 1% and has shown willingness to go again if needed.
Futures <0#YIB:> now imply an 80% chance the RBA will reduce interest rates for the third time this year to 0.75% at its Tuesday board meeting. One more cut to 0.5% is almost fully priced in by early 2020.
Record low interest rates have boosted home prices, helping end two years of continuous declines which ate away household wealth and confidence in a blow to consumption and the broader economy.
Separately, figures from property consultant CoreLogic on Tuesday showed home prices across capital cities rose 1.1% in September from August, while values for the nation as a whole gained 0.9%, the biggest jump since March 2017.
"CHALLENGING SCENARIO"
Some economists believe the price revival could prove a blessing for the construction sector which has seen a severe downturn in new home approvals, particularly for the once red-hot apartment sector.
In a positive sign, Tuesday's data showed a small bounce in approvals to build new apartments while non-residential construction surged 54%.
"The recovery in non-residential construction over recent months should go some way to countering the weakness in residential," economists at ANZ wrote in a note.
"Lower interest rates should eventually filter through to a pick-up in housing approvals."
The CoreLogic data showed the Sydney and Melbourne markets each saw price jumps of 1.7% in September.
On a year-on-year basis, Sydney prices were still down 4.8% and Melbourne off 3.9%, but that was a major improvement from the double-digit annual declines clocked earlier this year.
This uptrend led economists at RBC to raise their forecasts for Australia's house prices to an annualised rate of 6-8% growth in coming quarters, up from 4%.
However, RBC's Su-lin Ong said she doesn't expect the gains to be sustained, citing still modest property listings and turnover as well as rising unemployment, among other factors.
"Indeed, the more challenging scenario for the RBA in 2020 would be the persistence of sub-trend growth, sub-target inflation and a weaker labour market while house prices stay well above nominal (output) growth and the cash rate reaches the lower bound," Ong said.
(Reporting by Swati Pandey; Editing by Shri Navaratnam & Kim Coghill)
