There's finally some good news for Australian home builders

Ian Waldie/Getty Images
  • Australian new detached housing sales rose to the highest level since June last month.
  • From a year earlier, sales were still down 12.2%. In New South Wales, they’ve tumbled 22%.
  • Australia’s HIA says the bounce in November is unlikely to mark the start of a longer-lasting recovery in demand given headwinds facing prospective borrowers.

  • Australian new home sales rose modestly in November, providing some rare good news on this crucial part of the Australian economy.

    According to Australia’s Housing Industry Association (HIA), detached house sales rose by 3.6% in November after seasonal adjustments, leaving them at the highest level since June.

    HIA

    “The monthly rise was geographically widespread,” the HIA said.

    Sales increased by 7.3% in Victoria, 2.1% in Queensland, 7.4% in South Australia and by 2.2% in Western Australia.

    New South Wales, Australia’s most populous state, was the only location where sales declined from October, sliding 3.3%.

    The lift in sales followed a sharp jump in the value of housing finance approved in October, including loans to build new homes, according to data released by the ABS.

    “After a string of weak months, it is pleasing to see new home sales finishing the year on a slightly more positive note,” said Geordan Murray, Senior Economist at the HIA.

    “Despite the monthly rise, the overall level of sales in November is well below the level 12 months previously and also below what had otherwise been typical for most of the period since 2014.”

    Backing that view, the HIA reported that even with November’s bounce, sales were still down 12.2% from a year earlier.

    No recovery yet

    In New South Wales alone, total sales were down a mammoth 22% from a year earlier.

    Given headwinds facing prospective new home buyers both now and in the future, Murray says the November report is unlikely to mark the start of a longer-lasting recovery.

    “Given the softening of the Sydney and Melbourne housing markets, and the fact that the tight credit environment remains an issue for borrowers, we are not confident that the lift in sales in November marks the end of the downward trend seen throughout 2018,” he said.

    Having impacted housing investors initially, Murray says tighter lending standards as a result of APRA’s macroprudential restrictions and Australia’s financial services royal commission are now clearly inhibiting owner-occupier home buyers as well.

    “Tighter credit conditions facing owner-occupier borrowers are now weighing on the detached house building market, illustrated clearly by the reduced levels of new home sales and building approvals,” he says.

    And with the final report from the royal commission not scheduled for release until early in the new year, and with the federal election set to be held in May, Murray sees little prospect of an improvement in demand for new housing in the short-term.

    “With the Royal Commission scheduled to release recommendations early next year we see a risk that the credit squeeze may drag on into 2019,” he says.

    “With the new home market already looking vulnerable, policy makers will need to proceed cautiously when responding to the Commission’s recommendations.”

    The latest HIA survey captured views from 19% of Australia’s new detached home building sector.

    Sales of attached dwellings are not tracked by the HIA.

    Given recent evidence from building approvals data from the ABS and the Ai Group’s Performance of Construction Index, it’s safe to say the decline in sales of attached dwellings is likely to be equal to or greater than the slide in detached sales over the past year.

    NOW READ: ‘Our economy will suffer’: Philip Lowe is concerned lending standards in Australia have become too strict

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