New home sales have slumped and interest rates are squarely to blame, according to peak property group, the HIA.
HIA chief economist Tim Reardon said the rate rises meant the end of the home sales boom was nigh.
“New home sales fell by 13.1 per cent in July, highlighting the impact of the recent increases in the cash rate,” Reardon said.
“If this decline in sales continues, which is expected, then the 1.75 per cent increase in the cash rate so far will have brought this pandemic building boom to an end.”
The result for July was reported in HIA’s New Home Sales report, which surveys the largest volume home builders in NSW, Queensland, Victoria, South Australia and Western Australia each month. It is considered a leading indicator of the future of detached home sales.
All the states showed a decline in sales across the month with Queensland down by 15.5 per cent, New South Wales down 15.3 per cent, Western Australia by 13.5 per cent, Victoria 11.1 per cent and South Australia down by 9.7 per cent.
The report does not have data for Tasmania, the Northern Territory or the Australian Capital Territory.
Changes in new home sales
|State||Change in July 2022 (%)||Change compared to July 2019 (%)|
|New South Wales||-15.3||+12.8|
Source: HIA New Homes Sales Report, July 2022
Reardon said that while supply chain issues were increasing building costs, the interest rate rise ahd increased borrowing costs.
“The rise in the cost of borrowing will compound the impact of the rapid increase in the cost of building a new home due to constraints on global supply chains,” he said.
“The full impact of the rate increases will continue to flow through as an adverse impact on the sale of new homes for at least the next few months.
“This slowdown is consistent with reports from builders over recent months who have seen the number of people visiting display sites and making enquiries slowing since the first increase in the cash rate in May.”
However, compared to July 2019, many states had higher sales figures.
Queensland was up by 34 per cent compared to July 2019, as was Victoria by 17.8 per cent, New South Wales by 12.8 per cent and Western Australia by 8.2 per cent.
Only South Australia’s figures for July 2022 were lower than pre-pandemic levels—down by 9.9 per cent.
The highest sales volume for new homes in a month in recent times was in December 2020 when the HIA recorded sale numbers passing the 13,000 mark.
The HIA report suggeated that there was a buffer effect for the industry as well.
“There remains a significant volume of work under construction and approved-but-not-yet-commenced work that will provide a buffer for the industry, and ensure building activity and demand for skilled trades remains exceptionally strong through the rest of 2022 and into 2023,” Reardon said.
“There remains a risk, however, that the adverse impact of rising rates on the wider economy will be obscured by this volume of ongoing work and that the RBA goes too far, too soon.”