New home sales hammered

Please forgive the headline, but the HIA JELD-WEN new home sales report for January is out and the news is so poor despite two rate cuts that I’m sure how else I’m supposed to put it:

New home sales began 2012 on a weak note, a disappointing outcome given there was also a fall in December last year, said the Housing Industry Association, the voice of Australia’s residential building industry.

The HIA – JELD-WEN New Home Sales report, based on a survey of Australia’s 100 largest builders, showed a decline of 7.3 per cent in total seasonally adjusted new home sales in January 2012.

“A sharp decline of 19.6 per cent in detached house sales in Victoria weighed on the overall January result,” said HIA Chief Economist, Dr Harley Dale. “Nevertheless, there were also declines in detached house sales in New South Wales and South Australia in the first month of 2012 so the overall update is a weak one.”

“Clearly the interest rate cuts of late 2011 were insufficient to generate a sustained improvement in new home building conditions. That is a concerning outcome given new home building is a key barometer of the health of the domestic economy and it further highlights the inappropriateness of the rise in interest rates we endured earlier this month,” said Harley Dale.

Detached house sales fell by 7.4 per cent in January 2012 and eased by 0.5 per cent over the January 2012 ‘quarter’. When compared to the three months to January 2011, detached house sales dropped by 11.9 per cent. Multi-unit sales partially reversed their big jump of December 2011, falling by 6.3 per cent in January this year. Multi-unit sales fell by 14.1 over the quarter to be down by a substantial 25.1 per cent when compared to the three months to January 2011.

“Victoria for a long time propped up new home building in Australia and now the reverse is occurring,” said Harley Dale. “New home sales, along with other leading housing indicators, are showing that other large markets in Australia are not filling the void in 2011/12.”

As we’ve been saying for a year or more, the Melbourne building boom is a time bomb. It appears to be now going off. The fallout will depend upon how heavily the wave of oversupply hits established home prices. And how well the boom sectors can soak up the idle labour. So far so good but I worry for Victoria.

Victoria a Drag on New Year New Home Sales

Comments

  1. I said last month it may be time to revise the ‘slow melt’ thesis.

    Volumes collapsing and 0.8-1.0% falls MoM is not slow.

    Hopefully any inertia can remain until the 2013 election, then a housing collapse can occur while under the watch of the rightful ‘sound economic managers’.

    • Hopefully any inertia can remain until the 2013 election, then a housing collapse can occur while under the watch of the rightful ‘sound economic managers’.

      Oh that’s ok then. We can put the inventors of the First Home Owners Grant, and middle class welfare back in, and let the Gina keep all her cash.

    • The working Mums and Dads of this country are now reaping the painful windfall of the Labor government’s incompetence and dangerous economic policies. During our time in Opposition we were consistent in our attacks on the Labor Party’s weakness to stand up to our banks, whose greed has now helped to bring about this crash in property prices that is so badly affecting working Mums and Dads.

      We have always said that interest rates will be lower under a Coalition government, and the proof is that Australia experienced among the highest interest rates in the world under the previous Labor Government. If it weren’t for those higher interest rates, which were the result of bad Labor policies, the working Mums and Dads of this country would be in a very different situation today.

      When you add in the confidence sapping effects of Labor’s higher interest rates, Labor’s Great Big Tax on Everything, Labor’s tax on our most profitable mining industries, Labor and the Unions’ endless red tape that is suffocating small businesses, the billions of dollars wasted on pink batts and school halls, the $70 billion dollar broadband network sitting idle – it is really no surprise to see that Labor and Green policies are now having such a damaging effect on working Mums and Dads.

      That is why our government will now work harder than ever to wind back all of Labor’s disastrous policies, and put this country back on the right track.

      Future Tony Abbott/Joe Hockey press release, date of release circa 2013.

      • P.S

        The coalition will provide lower rates of interest by borrowing using Australia’s AAA credit rating and make sure everyone has the chance to be in debt

      • I’m more a Liberal than I am Labor…but let’s face it: Howard and Costello are the ones that REALLY pumped the housing bubble fires…

        Good intentions gone horribly wrong, IMHO…

        Not the first time “unintended consequences” has come back with terrible force, is it?

      • Good intentions gone horribly wrong, IMHO…

        How was anything they done in regards to housing a ‘good’ intention?

        Gifting people something for nothing is not, and hasd never been, ‘good’.

      • The intention, regardless of the party, is always to win the next election. Good doesn’t come into it.

      • Alternatively, the working mums and dads are suffering as a result of the private debt explosion under howard and Costello during which they allowed banks to borrow offshore to fund a housing bubble.

        The economic identity for GDP says that if the external sector stays constant, government savings must be offset by private borrowings if GDP is to remain constant.

        That wonderful Government surplus was achieved by the private sector borrowing maintain GDP and fund a housing bubble.

  2. This data must be incorrect. Everyone knows there is a shortage of housing in Australia and no matter how many dwellings we build, we can NEVER satisfy demand – hence the reason house prices ALWAYS go up. Also, Chris Joye says we’ve reached the bottom and house prices are on their way up over the next couple of years so why aren’t we all out buying more new houses? I’m confused? This data must be wrong.

    • Jumping jack flash

      +1.

      It’s just a bit of contra-positive growth. Nothing to worry about.

      The critical shortage will kick in any time now…

    • No, during a recession new builds always fall away, which unfortunately does impact on supply further downstream. Whether that can be accomodated easily, well we will have to wait and see.

      Developers are having difficulty finding finance fo new projects (subdivisions, units, housing projects, the lot) and that is the problem. Sure some people will still choose to build, but without the large projects the numbers tumble.

      TBH it just doesn’t help with affordability in the long term.

      • “TBH it just doesn’t help with affordability in the long term.”

        It helps immensely with affordability.

        With 10.3% of the labour force involved with construction, this is a terribly large margin we are looking entering unemployment.

        The impact of this level on unemployment on highly leveraged property leads to large scale defaults.

        Banks stuck with properties that they won’t write loans to purchase means they will shift only on the available savings potential purchasers have.

        An unleveraged purchase means what? Creditors selling houses at $45,000 each.

        That’s awfully affordable.

        Glass half full peter, glass half full.

        Let’s hope your book doesn’t have many loans written to construction workers yeah?

      • It’s not my plan, and it’s an opinion formed on recent precedent.

        It was the downfall in activity in the U.S. and Ireland that was the leading indicator to falling unemployment, that susequently led to rapidly falling prices.

        Now along with falling volumes, lower credit activity and now 20%+ fall in activity, the first measure is upon us.

        The activity side can only lead to the second measure coming upon us.

        Thus, I would say my opinion is well formed.

      • RP – Ah well if we are going to follow the USA plan exactly, you will have to cancel the resources boom.

        Be honest – that isn’t the only precedent is it, and none of them are rock solid or foolproof enough to be superimposed upon another country with different economic conditions.

      • Excellent comment Rusty.

        Ignore the resources distraction, it was with us in 1990.

        Total Australian Exports (Coal, Ore, Widgets etc) are under 16% of GDP, about where the US was in 2006.

        Australian Housing Debt to GDP is around 97%

        CBA’s mortgage book is 57% bigger than Australia’s total export value.

      • RP – Ah well if we are going to follow the USA plan exactly, you will have to cancel the resources boom.

        Why? a resources boom is meaningless in averting the outcome, it can oly dampen the marginal decline.

        Be honest – that isn’t the only precedent is it,

        Price/income ratios, credit availability and activity are the only meaningful measures of setting price.

        Employment only maintains a price, it doesn’t project it upwards forever into perptuity.

        They are the precedents that count, and none of them are looking good.

        and none of them are rock solid or foolproof enough to be superimposed upon another country with different economic conditions

        Different here ?

        I didn’t get the memo.

      • Jumping jack flash

        Much of the income from the resources boom is already spent years into the future. Ask the average mine worker how much they spend on debt repayment. It would be quite high and proportional with income.

        Debt is the great income leveller. You can thank the awesome computer models to calculate maximum debt for that. Poverty line is poverty line even when income is $200K a year.

        What isn’t preallocated to be spent at the banks is used to buy overseas manufactured and imported stuff, or absorbed by the ever-upwards march of cost of living.

        If it were not so, then retail and manufacturing wouldn’t be in the gutter as they are.

      • To my mind, at worst the boom defers the inevitable, at best, as a nation we really do somehow and rather miraculously avoid the fate of other nations. That some form of transition works…the Lucky Country?

      • Peter,
        You’re comments on MB are much appreciated. Have u considered blogging? The insight is great.

        Do you think with developers like RCL group going to the wall there must also be increased small and private guys going under?

        Rich

      • Thanks Rich – I don’t know RCL Group, unless I know them by a different name.

        Home builders will go through some tough times for some time as development funding dries up.

        Many construction workers will find work elsewhere. Others tell me that they aren’t needed in mining infrastructure, but many will be, and the building and construction labourers can easily get riggers certificates. However there will be some unemployed, but I just don’t see the whole construction workforce on the dole as some suggest.

      • Construction is backing off it is not going to stop completely, there will still be work but builders/carpenters etc will not have the back log of work that they have had in the last 10 years as well they will have to take a drop in wages as there will be more competition when quoting for jobs,
        Currently there is a slow build up of unemployed metal trades men happening also with the manufacturing job cuts and a reduction in preventative maintenance (shutdown workers) happening it has been a slow start to the year with a lot of construction work (heavy industry) starting up in the next 6 months a lot of these metal tradesmen will be trying to lock in longer term jobs in construction (heavy) so this will not help the timber tradesmen make the switch across to the heavy industrial as the workers with experience in this field will be taken up first.

      • One thing I would say is that is not just about supply or demand – it is about both, at the same time – the ratio (depending on how one wants to measure “supply” and “demand”).

        Affordability can be greatly improved by falling house prices, and quite possibly off-set any supply issues, such that the affordability metric(s) improves…ie. it’s not just about supply.

        The issue, then, if i’m right, is more about whether one can keep one’s income sufficient, to still be able to afford…which is a demand issue, and is another factor to consider IF one agrees that our economy is significantly structurally tied to the price of property (such that falling prices have significant structural ramifications…)

        My 2c

      • The 12 month average of building approvals has been falling for months. Less employment as the existing projects finish and fewer start. As completions fall, there are less projects to sell.

    • You are correct, there is a shortage, currently there is only the same amount of houses in Australia as there are atoms in the universe, so we have a critical shortage. If we don’t jump in now and buy (because its a really good time to buy) then we are going to miss out. If you build a trillion homes tomorrow there will be a shortage a few minutes later. Even with the baby boomers selling off their negative gearing, defaults, foreign investment that will jump ship we just won’t have enough homes.

      I am going to buy a house bus or caravan but the dealers have already told me that their maybe a shortage of these to. But for the cost of a Rolls Royce I can get an old rusty bus. Maybe I should jump in.

  3. Well that is interesting. I read somewhere that Malaysians were being offered the Oz first home buyers grant ——

    by Angus Thompson | Herald Sun

    “Foreign investors are being lured into the Melbourne property market with false promises of taxpayer-funded grants.

    The Federal Opposition has called for a crackdown on potential rorters after revelations new-home grants are being offered to Malaysian buyers whose adult children are permanent residents.

    An advertisement that appears in Malaysian newspaper the New Straits Times, spruiks properties in Whittlesea in Northern Melbourne as an “exclusive release to Kuala Lumpur”, adding: “Hurry get the AUD $13,000 Australian Government Grant.”

    http://discover.realestate.com.au/buying/home-buyer-grant-promises-lure-overseas-investors

    I wonder how many have slipped through the net ? They are getting desperate but it thankfully has not made much of an impact given the above stats.

    • Anyone with permanent residency can apply for the grant. You don’t have to be an Australian, and it has always been so.

      • Thanks Peter,

        I was unclear, yes anyone with a permanent residency of any nationality can apply for a grant.

        My point was that it appears however that the parents ( without OZ permanent residency) have been purchasing homes for their children who have permanent residency and placing the house in their children’s name in an apparent attempt to exploit a legal loop hole…..

        “the Planning Backlash convener Mary Drost said foreign buyers were exploiting a legal loophole.”

      • That would be ok as long as the parents didn’t live in the house permanently.

        The parents would probably have to pay for the house in full, although from Malaysia (ex British colony) they should be able to get an 80% LVR loan, but with some difficulty due to translating pay slips and tax returns etc to prove servicability. Because banks don’t know the cost of living in every country they load up a lot of buffers, including exchange rate buffers of about 20% – so it isn’t as easy as the media make out.

        The son or daughter could rent out a room or two. Australian can do that as well of course.

        I’m not saying that I promote these rules, but they do exist. I spent some time reading the Vic rules recently for a client, but essentially all states are the same.

        Kiwi’s don’t need residency.

    • commented before reading the release. but now ive read it, these guys make me furious. not to mention the HIA porky pies that started the whole “housing shortage” nonesense now they say it was innappropiate for banks to raise interest rates, all of 0.1%! yeah its all the banks fault home sales are falling.

      and this:

      “That is a concerning outcome given new home building is a key barometer of
      the health of the domestic economy” maybe the HIA should have thought about that before promoting a housing bubble, bit late now HIA.

      and here comes the cry for help and demands for more taxpayer money to prop up the sector now everyone has realaise what a conjob residential real estate has become:

      “now is the time for federal and state governments to embark on policy reform….. It’s a no-brainer.”

      the only “no brianer” is to stay out of the property market full stop which is what people are doing.

      but wouldnt be a property market release with out the spriuk, and here it is:

      “Now is a very good time to be building a new home for those who are financially set to take such a decision,” noted
      Harley Dale.

      “the voice of Australia’s residential building industry.”

      a voice that has already done so much damage and spread so many lies it should be totally ignored.

      thats my rant for the day

      • Wow!

        “Now is a very good time to be building a new home for those who are financially set to take such a decision,”

        noted Harley Dale.

        Imagine saying this on a whim…

        December 2008 – “Babcock and Brown has taken a 96% share price decline and now is a very good time to add it to your portfolio for those that are financially set to take such a decision.”

      • You might be shortcutting language, but we need to be clear that it is a relatively good time to be building if you already own the house or land and you want to rebuild. Labour is more available because new starts and approvals are down.

        It is land values that have boomed and are falling. The building on the land is a depreciating asset with the depreciation partially offset by inflation of labour and materials prices over time.

        It can be a great time to build, even if it is a bad time to buy land (whether it has a house on it or not)if the new house is a lifestyle/consumption choice. Transaction costs mitigate against selling in the face of an expected fall in price, particularly in areas not likely to have lots of unemployed even in a downturn.

  4. Is the seasonally adjusted value for Jan 2012 a mistype???? It’s not even HALF of the previous Januaries…. and it looks like approvals are still running high, so the unsold stock will keep accumulating.

  5. Are there figures available for new home sales (both detached and multi-unit) in Western Australia?

  6. Can that graph really be correct? That January number seems to be way down on prior January. Has it really come to this? What was the figure for January 2008?

    • The LHS side calibration starts at 5k.

      An eye level view says around 5,800 vs 7,400, so around a 20% fall.

  7. Sounding like a broken record but…

    Where is the value in a new home at the moment? Unless someone has a fetish about newness there is no financial advantage to buying a block of land and building or buying off the plan.

    We could have bought a brand new townhouse miles from public transport, schools and anything worth living near for $18K more than we paid for our beautifully renovated three bedroom postwar house.

    Friends of ours looked at buying a brand new four bedroom place on a fairly small block off the plan but decided against as they could spend thousands less and get a beautifully renovated five bedroom place with a pool a sizeable backyard.

    It used to be cheaper to buy a block of land and do the hard yards getting a house added, but now the opposite is the case.

    So why buy a new home unless you really like newness or getting to design the perfect place? Anyone?

    • Old is not always cheaper if you factor in repairs & maintenance required on an older property – A friend brought recently after the rains in Melbourne had massive issues with internal guttering.

      Also it can be very expensive to renovate an older property as well.

      Best bet is probably near new property close to transport options.

      Also builders are dropping prices.

      • Yes only today here in Melbourne Orbit homes was offering a 10% discount on all new homes to the first 50 buyers (Do you really think they were only offering it to the first fifty buyers?)

    • Doesn’t seem consistent across states. In WA, it seems the house and land packages are cheaper than aforementioned ‘post-war’ refurbished homes. The ones that are closer to the city that do cost less have a dodgy demographic and the ones that have good schools and facilities in the vicinity are priced a lot higher. Personally, I’d forego a bit of convenience, save myself that 20k and live in a new home built to my specifications in a young/vibrant neighbourhood. Different school of thoughts.

    • To extend on this, my observation on the quality new home construction is that it is basically appalling.

      They literally start falling apart the day you move in.

      Give me a solid post war brick veneer with hardwood frame any day. I’ll even take it unrenovated.

      • ** quality OF new home construction ***

        jeepers… I even proof read it 5 times. The capacity of the human brain to fill in the gaps is truly staggering.

      • Agreed. One (of many) unfortunate aspects of this bubble is the explosion in the number of inept operators that call themselves tradies, who have gathered at the honey pot. Some of the garbage I’ve seen defies belief. What’s worse is without even basic independent inspection, much of it will get through private building inspectors, who often do regular work for builders (and know which side their bread is buttered).

        When you roll in the crap, boxy, lifeless new designs on postage stamp alotments without any access to services, transport etc, you can understand why I’m still seeing decent property sell fast in middle ring Melbourne suburbs. When this ceases, then I’ll believe the economy is rooted and rates need cutting.

      • What’s wrong with small blocks? Very happy in my two story 3 bedder on 180 square metres here in Japan. CEOs here live on smaller blocks than the smallest possible in Australia. Land shortages are zoning problems, nothing more.

  8. Isn’t RP Data’s Index released for the previous month by this time?

    Any word on why it hasn’t been released yet today? They had a whole extra day this Feb than usual.

      • Thanks TP, was keenly awaiting it today and was wondering where it was.

        Any idea on what the changes to the hedonic mehodology involve? Add variables or rebalancing of variables?

        This sort of stuff from RP Data/Rismark makes me very nervous, particularly as it comes at a time when Chris Joye and Grantham’s “stoush” has picked up again, home prices are falling and the push is still on for a traded derivative of the index.

      • How can you make a major revision to a methodology and then hope to adaquately compare it to previous data sets conducted with a different methodology.

        Its the equivalent of only taking temperature readings during the night then suddenly start only taking them in the day, only to be dumbfounded as to why your two datasets are so utterly different.

        I was really wondering if CJ would try anything in order to win his bet it is becoming clear that it is likely that he will. Although I suppose we will find out tommorow.

  9. This may be a touch off topic, but I think it is interesting how the Aus government itself portrays Housing, check out the nuances between how they explain risks of negative gearing for Stocks vs. Houses. Is it just me or do they make House Investing soundmuch safer?https://www.moneysmart.gov.au/investing/borrowing-to-invest

    Borrowing to invest – Houses
    “Remember that the more you borrow, the more you stand to gain or lose and the more it will costs you in interest expenses. That’s why you have to be very sure that your property will earn a positive return over time. For more information, see borrowing to invest.”

    Borrowing For Shares:
    “Borrowing to invest magnifies the highs and lows. If the market falls, the results can be disastrous.

    You could lose all of your investment and end up owing money to the lender.

    The more you borrow, the greater the risk. If you are investing in a diversified portfolio of shares or a managed fund, borrowing more than 50% is highly risky.

    The less diversified your investment, the greater the risk. Borrowing to invest in one company or one industry sector is not recommended.”

    • Its the standard schlick Aussieoil, but thanks for reminding me of that site.

      I’m producing a special report on Investing in Property, should be out after I finish collating earnings season results….will likely add this reference. Thanks again.

    • “borrowing more than 50% is highly risky” even though you could create a positively geared portfolio that would pay itself off over time. but take out 100% against an investment property where the rent doenst even cover the interest let alone the principal……. go for your life.

      • I never recommended more than 50% LVR on shares when advising clients: the risk is too great of a decline of one or more (usually the whole, since most Aussie equities are highly correlated) stocks can skew the outcome (i.e a positively geared, higher value portfolio over time).

        The same applies with houses, IMO, 50% should be maximum for investing. Anything above and you are speculating on gains, because the rent increases are unlikely, in a reasonable timeframe, to provide you with a good enough risk adjusted return.

      • 50% LVR is very close to the norm 70% maximum before a margin call. That’s what makes a margin loan dangerous.

        There are no margin calls on home loans for owner occupiers.

        That’s a big difference.

      • I was comparing margin loans to investment loans, not PPOR home loans, which IMO (as you know) should be maximum 70% anyway.

        The average LVR on my f/a margin lending clients was 25-30% – only had a few who went to 50%, under caution by me.

      • Good – I like conservative margin loans – I’ve seen too much damage amongst people I know.

        Investment loans against property won’t be called either unless other factors come into play.

  10. It is a little unbalanced given there is no mention of the significant positive leverage one could receive in shares while there is when mentioning property.

    Having said that though they are right to be more cautious when discussing leverage in shares. For one standard deviations in returns are much higher than in property (particularly on an undiversified portfolio). That is an undisputed fact.

    More importantly though leveraging shares generally involves taking out a margin loan (this doesn’t apply obviously to those who secure a loan against property with a mortgage). Margin loans are undisputedly riskier than mortgages for a borrower given the potential for margin calls and/or liquidation of the portfolio following large sudden falls in values. In contrast a bank has no right (unless you default) to call in a mortgage that is underwater.