The Performance Construction Index of the Australian housing industry dropped to a seven months low value of 48.4 in March 2008 possibly due to interest rate hike.

The Australian construction industry slumped in March this year after a gap of seven months (Since September 2007). According to the Australian Industry Group/Housing Industry Association, the PCI (Performance Construction Index) reached below the balanced level of 50.0 at 48.4 in March 2008, a 5.5 point plunge, as reported by Reuters.

The Australian housing industry showed steep fall in construction activities in house and apartment building section whereas the commercial construction section experienced dramatic fall. Besides, orders for new construction slumped 7.9 point and took the index to 44.4. The commercial building measures heavily dropped by 14 point taking the index to the low level of 48.2. Similarly, the house construction sector’s index went down by 7.7 point to 41.1 whereas the apartment section eased by 3.4 point to 40.0.

According to the experts, interest rate hike by the Reserve Bank of Australia last month to 7.25%, highest in 12 years, possibly impacted the construction activities in the housing industry of the country. Furthermore, increased interest rate in mortgage industry drives up the cost of funds, leading to slowdown in the Australian housing industry.

Residential builders acknowledged negative influences of reducing housing affordability and weakness in new home. Coupled with these, the employment index fell marginally from 54.9 in February 2008 to 54.4 in March 2008. Australians also felt the heat of low wages that built extra pressure on their spending potentials last month. Thus, people expensed lesser on housing.

Altogether, the slowdown in the Australian housing industry activities and new orders brought down the delivery of suppliers to the lowest level recorded in August 2007. Consequently, it affected the total demand in the Australian housing industry.

A Senior Research Analyst at RNCOS said, “Disparity between the demand and construction activities in the Australian housing market took toll on the industry’s growth in March 2008 and would get worse in coming months. Harsh decisions made by the banks with regard to interest rate also put the construction activities on a hold. Australian realtors and builders should provide easy loans to people so that the demand for homes increase and industry comes back on track.”