The sharp loosening of fiscal and monetary policy is starting to gain traction in the housing market. Dwelling investment increased for the first time in two years in Q3, and leading indicators imply further upside in the near term.
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- Fiscal and monetary policy reacted swiftly and aggressively in order to shepherd the economy through the COVID-19 pandemic. As we have noted elsewhere, policy has supported the retention of jobs and bolstered household incomes, which has put a floor underneath the fall in household consumption.
- The Q3 bounce was driven by renovation activity, which has been supported by the HomeBuilder program. This activity will be strong in the near term and complemented by new construction; an uptick in approvals and mortgage lending signals an increase in work to be done in 2021.
- Beyond government grants, monetary policy has loosened borrowing constraints. Further, improved affordability is set to drive an increase in household formation. This alters the fundamental supply and demand balance in the market and has led to a substantial upgrade in our outlook.