New home sales fall 4.5% during September as first home owners grant winds down

Sales of new homes plunged by 4.5% during September just weeks after posting the highest monthly increase in three years during August, new figures from the Housing Industry Association reveal.

The drop in sales is mostly due to the phasing out of the increased first home owner’s grant, with chief economist Harley Dale saying the strength of the market will depend on the activity of investors over the next few months.

Sales of detached houses fell 4.3% during September from August, but were actually up by 4% during the September quarter compared to the June quarter. Sales of apartments also plunged by 6.5% during September, but were up by 4% for the quarter.

Detached new home sales rose by 8.9% in NSW, but fell by a massive 12.7% in VIC and 11.1% in WA. Sales also fell 1.1% in QLD and SA.

But Dale says the massive declines were to be expected after the 11%+ rise last month, and warns the next few months will see sales drop as first home owners retreat from the market.

“In the wider scheme of things, we weren’t all that surprised. There was a pretty decent rise last month, and that really reflected a last rush from the first home buyers getting in the market in time to get a contract. But by the time you get to September it’s too late, and a 4.5% drop is a reasonable result which could have been worse.”

The Federal Government is in the process of scaling back the first home owner’s grant. Originally it pledged $21,000 for buyers of new homes and $14,000 for established homes, but after 30 September the grants dropped to $14,000 for new homes and $10,500 for established homes.

“I think it’s reasonable to expect we’re not going to see a continuation of that really strong momentum in home sales we had earlier this year when the boost was at its height,” Dale says.

Instead, Dale says the strength of the market will depend on the number of investors who will take the place of first home owners.

“I think investors are increasingly coming into the market. No doubt there is increased interest, particularly as it’s become apparently there are now significant gains to be made in residential property.”

“You’ve got rental yields which are continuing to climb, and in some markets those yields have been the best they’ve ever been. Investors know all that, but they’re taking a bit of time to get in to the market. But if we get a few more months of sustained economic improvement, then we’ll see activity go up.”