Rate Rise Halved New Home Sales: HIA

Sales of new homes fell again in January, leaving sales in the previous three months a “remarkable” 46.7 per cent lower than in the previous year.

The HIA New Home Sales report, a monthly survey of the largest volume home builders in the five largest states, found new home sales were down by 12.8 per cent for the month.

For the three months to January 2023, compared to the same period the previous year, new home sales in NSW were down by 73.1 per cent, followed by Queensland (-53.9 per cent), Victoria (-41.6 per cent), and Western Australia (-21.7 per cent). Sales inched up 2 per cent in South Australia.

The blame for the downturn has been placed squarely at the feet of the Reserve Bank by the HIA.

“Sales of new homes have stalled in recent months as the adverse impact of the RBA’s rate increases continue to erode market confidence,” HIA chief economist Tim Reardon said.

“There is no indication that the market has reached the bottom of this cycle with sales falling in all states. A further increase in the cash rate in February is likely to see sales fall further.”

Reardon said that without an improvement in access to finance, or a lowering of rates, building activity would start to contract from late this year.

“Many buyers have been forced from the market by the higher rates, but even those buyers unaffected by the RBA’s actions are unwilling to purchase given the economic uncertainty,” he said.

“There are long lags in this cycle given the large volume of building work under way which will obscure the impact of the rate rises on the wider economy.”

There was a risk that once the contraction in home building occurs and slows activity across the rest of the economy, it would prove difficult to stop, he said.

“The RBA overshot interest rate increases after the GFC and in previous cycles, resulting in a roller-coaster ride for the building industry,” Reardon said.

“It appears that the RBA is set to continue this boom-to-bust cycle.

“The RBA doesn’t need to crush the economy in order to slow inflation.

“The supply-chain disruptions that caused the high inflation in recent years are easing for reasons unrelated to the RBA’s actions.

“Interest rates are a poor tool for addressing inflation and fiscal policy measures have been shown repeatedly to be better at managing the risks of embedded inflation.”