Australian new home sales are accelerating again

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Australian new home sales rose strongly for a second month in January, adding to recent evidence that conditions in the residential housing market are once again strengthening after a lull in the final quarter last year.

According to the HIA, new home sales rose by 3.1% over the month, with a 5.8% increase in detached housing sales offsetting a decline in multi-unit sales of the same magnitude.

Revealing that the strength in detached housing sales was broad-based, all of the five mainland Australian states saw turnover increase from a month earlier.

Sales in Queensland and Western Australia surged by 7.9% and 7.3% respectively, outpacing gains of 5.5%, 4.2% and 1.3% in Victoria, New South Wales and South Australia.

“Contrary to yesterday’s ABS building approvals release, the HIA new home sales report for January 2016 showed further strength.” said Harley Dale, chief economist at the HIA. “The overall trend evident across both leading indicators is very similar – signalling that once the current (record) pipeline is exhausted, new home construction activity will soften.”

Yesterday the ABS released building approvals data for January, something that revealed new approvals for detached housing and high-density apartments fell heavily over the month.

The continued decline, both in seasonally adjusted and trend terms, adds weight to the view that residential construction, and as a consequence new home sales, are likely to slow from the record breaking level seen in 2015.

Despite that near consensus view, Dale suggests that 2016 will likely be another strong year for the industry.

“This year will be another healthy one for detached house and ‘multi-unit’ construction, but we won’t surpass the heights of 2015,” says Dale. “The new home building sector is crucial to Australia’s economic prospects in 2016 and should continue as a mainstay of domestic economic activity. That is provided policy considerations and debates underway now don’t have adverse consequences for confidence towards housing.”

While the current debate towards the tax treatment on housing is certainly impacting consumer sentiment, as yet there a few signs that it’s deterring home buyers.

Continued strength in housing credit growth, along with a recent bounce in auction clearance rates, suggests the outlook for house prices may yet again overshoot cautious forecasts offered earlier in the year.

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