- New home sales rebound from 11-year lows – new homes sales lifted by 6.9 per cent in April, a partial rebound from March where sales slumped 9.4 per cent to 11-year lows.
What does it all mean?
- Admittedly the data on new home sales is obtained from a survey, rather than being a complete snapshot of activity in the latest month. But it does provide a guide to what is going on in one of Australia’s key sectors.
- The good news is that home sales lifted in April. The bad news is that the lift only partially retraced the previous month’s declines. The good news is that Victorian house sales soared. The bad news is that the upcoming expiry of the First Home Bonus probably had a lot to do with it. The good news is that home sales rose in Western Australia and NSW. The bad news is that sales fell in South Australia and Queensland.
- And unfortunately in economics it can get like that – on the one hand this, on the other hand that. However it is clear that home building is weak, certainly well below averages over the past five years.
- In part, Aussies lack confidence to build. Others are opting for shared accommodation, whether it be Gen Y renting apartments together or staying home with their parents. Or it may be that senior Australians are opting to live with their children (and grandchildren). Certainly home occupancy has been rising over the past two years – something that hasn’t happened in over a century.
- And developers are finding it harder to get finance, with lenders requiring 80 per cent pre-commitments or above before they are willing to assist with finance.
- Rental vacancy rates remain low across Australia, reflecting the softness in new building and still firm demand. But the lack of speculative building may ultimately prove positive as it means that Australia won’t go down the US route and build more homes than are needed.
- The Reserve Bank has certainly expressed more concern about the lack of home building in recent months. However it can only do so much in stimulating activity. Ultimately federal and state governments need to sit down with developers, industry bodies and finance providers to work out the fundamental constraints on new home building. A home building summit would certainly be a positive leadership initiative from the Federal Government.
What do the figures show?
New home sales
- The Housing Industry Association / JELD-WEN new home sales report shows that number of new homes sold in April rose by 6.9 per cent after falling by 9.4 per cent in March to 11-year lows.
- Detached house sales rose by 6.4 per cent while multi-unit sales were up by 10.3 per cent.
- New home sales in April were 24.2 per cent lower than a year ago and have fallen at a double-digit annual rate for the past five months.
- The HIA note: “In April 2012 the number of seasonally adjusted new detached house sales increased by 17.2 per cent in Victoria ahead of the removal of the First Home Bonus.”
- “Detached house sales also increased in Western Australia (by 9.8 per cent) and New South Wales (by 1.8 per cent). Detached house sales fell by 5.9 per cent in South Australia and by 5.5 per cent in Queensland.”
- The increase in Victorian home sales was the first gain in five months and most likely reflects a bringing forward of sales before the First Home Bonus scheme is concluded on June 30.
What is the importance of the economic data?
- The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 13 per cent of the home building industry.
What are the implications for interest rates and investors?
- If fundamental solutions aren’t found to boost home building, then a raft of sectors will be left without momentum. Home building affects builders, tradespeople, financiers, retailers, landscapers and building material supply industries. The multiplier effects across the economy are significant.
- While home sales have lifted in the past month, overall activity remains weak. The Reserve Bank will consider another rate cut at the June meeting, but a raft of other influences will determine whether they act at that time or hold off a little longer.
