New home sales fell 8.7% in June to their lowest level since last September, according to the latest data from the Housing Industry Association, which warns that the industry is at risk if the Reserve Bank decides to raise interest rates tomorrow.
The data comes as the auctions market has once again delivered a less-than-impressive result, even with unseasonably warm weather in Melbourne.
HIA chief economist Harley Dale says the result is weak, and that anecdotal evidence suggests that interest and demand for new housing has “hit a wall”.
“This piece of empirical evidence supports the anecdotes we’ve been hearing.”
Dale says the industry needs an extended period of steady interest rates in order for building to take off, but that won’t occur if the RBA raises interest rates tomorrow, or even during the rest of the year, he warns.
“We’ve had a forecast for a long time this year that building would be significantly weaker than we saw in 2010, and as I’ve said before, higher interest rates are just going to add to the risk that it becomes lower than what we’re already forecasting.”
“What you ideally need is a sustained period of steady interest rates… but that particular outcome looks unlikely because regardless of whether the Reserve Bank hits the button tomorrow, we’ve got considerable amounts of uncertainty over interest rates.”
Dale says the HIA has received an invitation to the tax summit in October, and a representative from the organisation will be attending. He hopes that some sort of benefit for the industry can be achieved, saying that stimulus is needed in order to improve home building levels across the country.
“Are there some stimulus measures the Government could be considering, in the form of boosting new homes, or perhaps looking at accelerated depreciation for rental investment? Should the Government be considering options to reduce risk?”
The calls for stimulus come as a number of companies in the building and construction industry have collapsed, citing poor trading conditions as a major factor.
Dale says this type of support is extremely important, as the evidence suggests that sentiment for housing is dropping, even though interest rates have remained steady since last November.
“The situation for new home building reinforces the importance of getting tangible outcomes from the tax forum in early October. You have a situation where new housing is very heavily taxed, and we’re hoping to nut out a way to remove some of those inefficient costs.”
Meanwhile, auction results over the weekend were disappointing, with Melbourne recording another weekend of clearance rates under 60% as agents await the Spring selling season, when they hope prices will strengthen.
According to the Real Estate Institute of Victoria, there were 543 auctions and a clearance rate of 58%, up from 57% last weekend. The data shows 315 homes sold, with 228 passed in.
“The number of homes on offer at auction over the next few weeks is in line with the average for this time over the past five years. An average of 509 auctions are listed compared with 496 over the previous five year,” REIV chief executive Enzo Raimondo said in a statement.
In Sydney, the clearance rate was 42.9%, with 365 reported auctions, with a total value worth $114.3 million.
Adelaide and Brisbane recorded clearance rates of 41.2% and 28.6% respectively.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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