New homes market in Australia is the country’s weakest sector, says the HIA

Sales of detached new homes persistently weak

Sales of new homes in Australia were disappointing in July with the market all the modest ground made at the end of last year and beginning of 2012, according to the Housing Industry Association, the voice of Australia’s residential building industry.

The HIA New Home Sales report, a survey of Australia’s largest volume builders, showed a decline of 5.6% in July 2012, reflecting a fall of 5.5% in the persistently weak detached housing segment and a 6.4% drop in the multi unit market.

‘New home building is the weakest sector of the Australian economy. Despite interest rate cuts in 2011/12 new home sales and the Australian Industry Group-HIA Performance of Construction Index both point to deteriorating conditions in July,’ said HIA chief economist, Harley Dale.

He believes that now is a good time to build a home.

‘Interest rates are lower, it’s a very competitive market, and there is less pressure on skilled labour availability,’ he explained. But consistently weak consumer and business confidence is weighing very heavily on new housing investment.

‘Combine that low confidence with very tight credit conditions and excessive taxation, and you have the unpalatable recipe for the recessionary conditions facing new housing. Leading indicators suggest this situation will persist well into 2012 and even 2013,’ he added.

In July 2012 the number of seasonally adjusted new detached house sales fell by 6% in New South Wales, 4.6% in Victoria, 8.9% in South Australia, and 14.4% in Western Australia. Queensland bucked the trend with a rise of 11.1% in July.

Meanwhile preliminary figures from the Australian Bureau of Statistics confirm a further deterioration in residential construction activity in the June 2012 quarter.

Dale said that a fifth consecutive decline in residential building work done provided a wake up call to governments that they can’t sit back and rely on interest rate reductions to lift a key Australian industry out of its current parlous state.

‘Federal and state governments need to get out there and act on investment and reform initiatives to help revive the residential construction industry. New residential work done has been falling since the June quarter last year and is now running at an eleven year low, worse than experienced during the global financial crisis,’ he explained.

‘That situation is unhealthy and undesirable for Australian businesses and households, while federal and state governments are too slow in taking action,’ he added.

Larger renovations, including alterations and additions, also continued to decline in the middle of 2012, with June representing the fourth consecutive quarter of contraction.

‘Investment in larger alterations and additions projects trended higher for the better part of a decade. That trend has now firmly reversed amidst a tide of low consumer confidence, lack of available credit, and flat dwelling prices,’ Dale pointed out.

In the June 2012 quarter new residential building work done fell by 2.5%. Detached housing, a key persistent source of weakness for the Australian economy, fell by 3.5%. Work done on other dwellings eased by 0.5% while work done on larger alterations and additions fell by 2.3% to its lowest level since September 2009.

Residential building work done fell in five out of six states with Queensland providing the exception. Activity increased in the two territories.

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