Nationwide home sales fell 7.2 per cent last month, according to new data from the Housing Industry Association (HIA), with cash rate increases as the primary driver.
Despite a cash rate pause in April, the HIA’s New Home Sales report for March revealed the RBA’s 10 previous interest rate increases, including one a month earlier, have caused the downward trend in new home sales.
HIA senior economist Tom Devitt explained, “The latest decline leaves sales in the first three months of the year down 45.9 per cent compared to the same quarter last year.”
Victoria and South Australia reported the largest month-on-month sales declines, down 23.4 per cent and 22.4 per cent respectively, followed by Queensland, where they dropped 2.2 per cent.
Monthly sales increases were reported in Western Australia, where they jumped 22.5 per cent, and in NSW by 1.7 per cent.
However, sales for the first quarter of 2023 were down 75.9 per cent in NSW when compared to the equivalent period of last year, the largest drop-off in the nation, while rates of decline were reported in Queensland (-54.3 per cent), Victoria (43.4 per cent), and South Australia (13.7 per cent).
Western Australia was the only state or territory to record sales volume increases after they jumped 1 per cent between the first quarter of 2022 and the same period of 2023.
He explained that increased project cancellations have compounded these declines, with the national cancellation rate increasing to 30.5 per cent in March.
“This means for every three new building contracts that are signed, one sale from a previous month is cancelled,” he said.
Mr Devitt revealed “many builders have reported ‘negative sales’ over recent months,” before adding “the last time the rest was near this high was the start of the pandemic.”
Last month, Victorian building company Porter Davis entered liquidation, impacting 2,500 home contracts, with the corporation citing a drop in new home demand as one of the primary drivers of its collapse.
While the cash rate was held at 3.60 per cent during last month’s board meeting, Mr Devitt described the RBA, which is set for a restructure following a wide-ranging government review, consistent cash rate increases throughout 2022 and early 2023 as “continuing to hold down new sales and cause further cancellations as finance becomes unobtainable for an increasing number of buyers.”
He said the impacts of interest rate increases have been intensified by the rapid increase in land and construction costs across a number of Australian jurisdictions over the past two years.
Mr Devitt noted that “the additional costs of compliance with the National Construction Code that come into effect this year will further increase the cost of new home construction.”
He concluded that a mixture of low sales volumes and increasing cancellations of existing projects “will hollow out the pipeline of building work over the coming months.”