For the second month running, the number of new homes successfully exiting the market has risen, according to new data from the Housing Industry Association (HIA).
HIA’s most recent New Home Sales report, a monthly survey of the largest volume home builders in Australia’s five largest states, revealed new home sales rose 9.4 per cent during May. As a result of this increase, new sales over the last three months exceed that of the previous quarter by 4.4 per cent.
Tom Devitt, senior economist at HIA, indicated these increases were being experienced “despite the ongoing rise in the cash rate”.
However, Mr Devitt warned the recent upward trend doesn’t indicate the national market has completely weathered the recent intense downswing.
“Despite this small rise in sales, they remain at depressed levels. Sales in the three months to May 2023 were more than 40 per cent lower than in the year before when interest rates started to increase, and 25 per cent lower than prior to the pandemic,” he explained.
“This indicates that the slowdown in home building that is underway will continue for at least the next year,” he added.
NSW, where the effects of the Reserve Bank of Australia’s (RBA) monetary policy tightening cycle have been felt most glaringly, experienced the biggest contraction in sales due to customers in Australia’s most populous state being more sensitive to cash rate increases.
On the cancellation front, Mr Devitt revealed they remain up 25 per cent in the last quarter nationwide.
“This means, for every four new projects a builder is recording, a previous project is being cancelled,” he clarified.
Moving forward, the RBA’s rate increases, current and any potential future lifts, “will continue to hold down new sales and cause further cancellations as finance becomes unobtainable for an increasing number of buyers”.
Rate increases haven’t been the only financial pressure crushing the momentum of Australia’s new home sales, with rising costs of land and construction also a significant factor in dwindling rates of new home ownership.
Additionally, Mr Devitt expects additional costs of compliance with the National Construction Code coming into effect later this year “will further increase the cost of new home construction and dampen demand further”.
“This combination of factors will see home building continuing to contract for at least the next 12 months to its lowest level in more than a decade,” Mr Devitt concluded.