Australian new home sales fall again as the credit squeeze rolls on

William West/AFP/Getty Images
  • Sales of new detached homes in Australia fell again in October, leaving total volumes down 13.9% on a year earlier.
  • Sales fell in New South Wales, South Australia and Western Australia, partially offset by gains in Victoria and Queensland.
  • The HIA says persistent weakness in new home sales reflects an ongoing “credit squeeze”.

Australian new home sales fell again in October, driven by another steep drop in New South Wales.

According to Australia’s Housing Industry Association (HIA), sales of detached homes fell by 0.8% in seasonally adjusted terms, leaving the decline on a year earlier at 13.9%.

HIA

The report does not survey the level of apartment sales.

Like so many aspects of the housing market at present, Geordan Murray, HIA Acting Principal Economist, said the decline last month largely reflected the ongoing impact of tighter lending standards.

“The credit squeeze continues to slow new home building,” he said following the released of the October report.

“New home sales have been falling steadily throughout the year and constraints on access to finance are further impairing sales in recent months.”

By state, the HIA said sales fell in New South Wales, South Australia and Western Australia, declining 4.9%, 5.6% and 10.7% from the levels reported in September. Helping to offset the weakness in those locations, sales rose by 4.3% and 2.5% respectively in Victoria and Queensland.

While restricting or limiting finance to investors, interest-only and highly indebted borrowers was initially introduced by APRA, Australia’s banking regulator, to curb riskier forms of lending, Murray says there’s now clear signs this is spilling over to other parts of the Australian economy.

“When APRA imposed tighter rules on mortgage lenders at the height of the cycle they were aiming to head off any growth in risky lending before it became a problem,” he says.

“To that extent, the added oversight has done its job but the tighter lending environment is now stifling residential building activity.”

And with the final report from Australia’s financial services royal commission dues to be handed down early next year, Murray says “there is a risk that there will be further disruption to the lending environment in 2019”.

“Any further tightening in home lending risks becoming a destabilising force in the housing market,” he says.

While this risk is already on the radar of senior policymakers at the RBA, Murray says the broader macroeconomic backdrop in Australia should, at this point, mean the downswing in residential construction in the years ahead be orderly in nature.

“The housing downturn, which has been orchestrated by regulatory interventions in the lending market, is occurring at a time when the broader economy is in a position of relative strength,” he says.

“The labour market remains strong and interest rates are likely to remain accommodative for some time yet. These factors will provide support for the housing market during this next phase of the cycle.”

The HIA said the latest survey of home builders captured responses from 19% of the Australian market.

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