Today’s new home sales release for May from the Housing Industry Association (HIA) provided more evidence that the housing construction industry is recovering from its “longest trend decline in post-war history” (quote from the HIA).
Following April’s 3.9% increase, new home sales nationally rose by a further 1.6% in May, with detached house sales increasing by 0.9% and unit sales rising by 5.7%. Total new home sales are now in an uptrend, having risen by 23% since sales bottomed in September 2012, driven primarily by a surge in unit sales (see next chart).
While the recovery is promising, it needs to be kept in perspective, with annual new home sales tracking only marginally (2.4%) above the 16-year lows recorded in December 2012 (see next chart).
Importantly, the employment-sensitive detached house segment remains very weak. Despite the recent pick-up, annual sales in Victoria, Queensland and South Australia continue to track near record lows, whereas sales are strong in Western Australia and New South Wales is recovering from low levels (see next chart).
First home buyer incentives introduced in New South Wales and Queensland in October 2012 appear to be having mixed results. While new house sales are 63% higher than September in New South Wales, they have fallen by 6% in Queensland (see below charts).
With Victoria cancelling its First Home Owners’ Grant on pre-existing dwellings on 30 June in favour of expanded subsidies on new builds, it will be interesting to see whether the change in policy works to stimulate sales, as it has done in New South Wales, or fails to have much of an impact, as is the case in Queensland.
More broadly, as I have argued many times over the past year, any uplift in housing construction activity is likely to remain fairly muted due to land/housing prices already being excessively high and households carrying too much debt.
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