New Home Sales Up Again but Levels Remain Depressed

Sales of new homes across Australia increased for the second month in a row in May despite the ongoing rise in the cash rate.

 The HIA New Home Sales report—a monthly survey of the largest volume home builders in the five largest states—found that sales of new homes increased by 9.4 per cent in May 2023 compared to the previous month, leaving sales in the last three months higher by 4.4 per cent on the previous quarter.

HIA senior economist Tom Devitt said that 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 said.

“This indicates that the slowdown in home building that is under way will continue for at least the next year.

“The most significant contraction in sales is in New South Wales where customers are more sensitive to rises in the cash rate.”

Devitt said cancellations remained elevated at a rate of 25 per cent in the last quarter. This means, for every four new projects a builder is recording, a previous project is being cancelled.

“The RBA’s rate increases will continue to hold down new sales and cause further cancellations as finance becomes unobtainable for an increasing number of buyers,” he said.

“The significant increase in the cost of land and construction across all jurisdictions over the past two years is compounding the impact of higher interest rates.

New home sales (seasonally adjusted)

▲ Source: HIA

“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 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.”

Sales of new homes in the three months to May 2023 compared to the same time last year are still down in most large states, led by New South Wales (-63.6 per cent), and followed by Queensland (-52.9 per cent), Victoria (-46.6 per cent) and South Australia (-29.5 per cent).

Western Australia had the only increase over the year—up by 19.4 per cent.