May sees new home sales increase for second month

SALES of new homes across Australia increased for the second month in a row in May despite ongoing rises in the cash interest rate according to Housing Industry Association data.

The HIA New Home Sales report, a monthly survey of the largest volume home builders in the five largest states, is a leading indicator of future detached home construction.

Sales of new homes increased by 9.4 per cent in May compared to the previous month, leaving sales in the last three months higher by 4.4 per cent on the previous quarter.

“Despite this small rise in sales, they remain at depressed levels,” said HIA senior economist Tom Devitt.

“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.

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

The most significant contraction in sales is in New South Wales where new home buyers appear to be more sensitive to rises in the cash rate.

Cancellations also remain 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,” Mr Devitt said.

“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.

“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.

“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.

New South Wales led the way down 63.6 per cent, followed by Queensland with a 52.9 per cent reduction, Victoria was down 46.6 per cent, and South Australia off 29.5 per cent.

Western Australia saw the only increase over the year, up by 19.4 per cent.