This might be the end of Australia's new home boom

Alex Caparros/Getty Images

Australian new home sales tumbled in July, reversing an equally enormous gain just one month earlier.

According to figures released by the Housing Industry Association (HIA) on Monday, new home sales slumped 9.7% in seasonally adjusted terms, completely reversing the 8.2% gain seen in June.

The association is warning of even further falls to come over the coming two years.

While extremely volatile due to the impact of higher density housing sales, the total number of sales recorded in July was the lowest seen since July 2014.

Fitting with the ugly headline figure, detached housing sales fell heavily in all mainland states, led by a 12.6% slide in South Australia. From largest percentage decline to smallest, sales fell by 8.7% in Queensland, 8.2% in Western Australia, 6.2% in New South Wales and by 6% in Victoria.

To Harley Dale, chief economist at the HIA, the fall in July is a clear sign that the housing construction cycle has now peaked.

“New home construction has been the kingmaker of the Australia economy, but the cycle has peaked,” said Dale following the release of the July report.

“The short term outlook for healthy levels of new home construction remains intact – calendar year 2016 will be a record year for new dwelling commencements, but the situation could look very different from next year.

“In all likelihood we will experience sharper falls in new home construction in both 2017 and 2018,” he added.

Although Dale suggests that there’ll be a degree of sensationalism about the scale of the housing construction slowdown that’s likely to been seen in the years ahead, he believes the decline need to be put into perspective.

“There will no doubt be a tendency to sensationalise any negative results for new housing as the trajectory of the down cycle unfolds,” he says.

“We would do well to remember that this down cycle is following a record high that is some 24 per cent higher than the previous (1994) peak and that there is an unprecedented degree of uncertainty this time around as to how the next few years of new home building unfold.”

This week Australian building approvals and housing credit figures for July will be released.

Given the scale of the decline reported today, along with concerns surrounding overbuilding in some parts of Australia’s largest cities, both figures will be scrutinised closely in an attempt to determine just how severe the housing construction slowdown could be in the period ahead.

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