Interest rate cuts boost new home sales in Australia

Detached house sales have increased, claims survey

The first interest rate cut in two and a half years has had an immediate impact with sales of new homes jumping 6.8%.

The latest New Home Sales report from the Housing Industry Association based on a survey of Australia’s 100 largest builders, shows a significant bounce for sales in November 2011. Total seasonally adjusted new home sales increased by 6.8% following a downwardly revised 2.8% gain in October.

Detached house sales increased by a relatively healthy 9.8%, driven primarily by a stronger showing in New South Wales and Victoria, the report also shows. But multi unit sales fell by 17%.

‘This is a healthier but not unexpected result. Only two months earlier in September 2011, detached house sales plumbed to an 11 year low,’ said HIA chief economist Harley Dale.

‘From this parlous starting position, and with speculation regarding a rate cut mounting and then delivered upon, anything other than some recovery in sales volumes would have been surprising, not to mention highly disturbing,’ he explained.

‘With falling interest rates, a competitive building market, and a greater availability of skilled trades amidst still very soft overall demand conditions, now is clearly a good time to build a new home for those who are financially set to take that decision,’ he added.

But Dale pointed out that there is still a long way to go to restore new home sales volumes to acceptable levels. At present sales volumes are running at least 20% below what you could conservatively call healthy.

‘Interest rate cuts, both those we’ve had and those that are still warranted, provide a starting catalyst for a sustained and strong recovery in new home building conditions. Such a recovery won’t emerge, however, without well targeted government stimulus and without a re-engagement of the policy reform process to reduce the high and inefficient barriers to new housing supply,’ he said.

The volume of detached house sales improved in four out of five mainland states in November 2011, rising by 22.8% in New South Wales, up 11.6% in Victoria, up 5.7% in Western Australia and an increase of 4.7% in Queensland. Sales fell by 11.3% in South Australia.

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