The decline in Australian housing construction could be the 'most lengthy' in the industry's history

(Daniel Milchev /Getty Images)
  • HIA’s new home sales data showed an increase of 1.1% in September, after two straight months of falls.
  • However, HIA said the positive result won’t offset a broader downturn that is now “in train”.
  • In addition, HIA said the decline in new-home construction is now likely to extend to the end of 2020.

After accelerating in July and August, the recent decline in Australian new home sales eased up in September.

Seasonally-adjusted data from the Housing Industry Association (HIA) showed new home sales increased by 1.1%, after falls of more than 3% in each of the previous two months.

Housing Industry Association

However, the overall trend of a decline in sales remains in train, HIA said.

New home sales for the September quarter were down 4.7% from the three months to June, and 8% lower compared to the same time last year.

Any data on new home sales is also inevitably linked to the outlook for building approvals and dwelling construction.

Data for August showed new building approvals slumped by 9.4% in year-on-year, following a 4.6% in July.

And while the slowdown in residential construction is being driven by apartments — where approvals fell by 17.2% in August — HIA also expects the decline in new home-building activity to extend for a while yet.

“We expect this downturn to be the most lengthy that the industry has experienced, with the trough forecast to occur some 18 quarters after the peak,” HIA said.

“June 2018 represented the halfway mark, with the declines expected to conclude at the end of 2020.”

For comparison’s sake, HIA said new home-building downturns typically last for just seven months.

And they’re usually caused by rising interest rates or external factors such as a slowdown in the global economy.

But according to HIA, the current falls are a by-product of the slowdown in domestic credit growth in response to tighter regulatory restrictions.

“These unique circumstances make for a unique building cycle,” HIA said.

However, if there’s a silver lining to the latest report, it’s that HIA expects the home-building downturn to be long and drawn out — but not particularly steep.

“The trajectory of the downturn is expected to be gentle relative to previous downturns, with the peak to trough decline forecast to be in the order of 20%.”

And a 20% fall would still leave new home-building at a level above previous peaks.

Looking more closely at the new home sales data, September’s 1.1% increase was driven by a pickup in every mainland state except Queensland.

Sales of new private detached houses were led by Victoria (+7.9%) and WA (+4.0%).

There was a sharp 10.8% fall in Queensland, however, sales in the September 2018 quarter “were still 35.5% higher than the low ebb that occurred in the September quarter last year”, HIA said.

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