Housing construction rebound still tentative

By Leith van Onselen

Yesterday’s jump in new home sales in December, whereby sales rose by 6.2% over the month, breathed new life into the Reserve Bank of Australia’s (RBA) and Treasury’s plan for housing construction to fill the void left as the mining investment boom starts to unwind later this year.

While the rise in new home sales was a welcome boost to an industry in recession, the outlook for housing construction remains fairly precarious.

First and foremost, despite the jump in sales in December, sales levels were still below the same time last year, which meant that new homes sales nationally hit fresh all-time (16-year) lows on an annual basis (see next chart).

Sales in the labour-intensive detached house component remain particularly weak, with sales in all mainland states, except Western Australia, at 16-year lows on an annual basis (see next chart).

Moreover, house sales have still failed to respond to the -1.75% of cuts to official interest rates since November 2011, with sales levels falling by -15% since rates were first cut. This compares to an average 33% rise in new home sales at the same stage of the three previous interest rate-cutting cycles (see next chart).

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Unconventional Economist
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  1. Vic needs to cut its FHB grants on pre-existing properties asap to arrest its worst-of-all freefall in new house sales.

    HIA? Ted? Asleep at the wheel?

    • I don’t think there’s a single banker in Melbourne that wants to fund land right now. Most facilities are effectively in workout mode already.

  2. So we have a manufacturing crash, and at some point China’s big slow down, then the AU dollar drops, inflation takes off, (have no idea what will happen to interest rates), unemployment rises (forcing wages down), and the average consumer pulls back even more as they struggle to pay for mortgages/rents because property is over priced.

    I can’t see how any of this is going to work out well for the housing industry.

  3. Over here in Mandurah WA they’re offering $50k incentive packages trying to flog new houses. Between here and Perth (70km) the Kwinana Freeway is littered with new developments either side. Prices are low end and incentives rain like confetti. Actual house construction activity is barely noticeable.

    Had a chat to a senior manager of one of the large building Co’s a few months back and his take was it was the slowest he’s seen in 15 years.

    • The thing is, they are still not low.

      a 30 year old 3×1 in Kwinana with obscenely small bedrooms is still $250-280 k.

      That’s still 4 times wages.

      The thing is… this is not the average house, in fact its several orders below average. It is a below average good, in the lowest price LGA in Perth. An area wracked with disadvantage.

      The is the very bottom, and it is still 4 times wages.

      This wasn’t meant to cater for average, this was meant to cater for below average. If the average wage earner has to resort to here, where does the below average person go?

      Ohhj I know… they become one of the 41% of all renters receiving a government handout.

      The rentier suckling from the government teat.