Has the new homes bounce ended?

HIA new homes sales is out and recovered a little ground in August:

In August 2013, total seasonally adjusted new home sales increased by 3.4 per cent, partially recovering from the previous month’s fall of 4.7 per cent. The rise was driven by a 5.8 per cent increase in detached house sales while multi-unit sales fell by a substantial 11.2 per cent. While it would be overly pessimistic to suggest that the momentum in new home sales has been lost, this latest hiccough for multi-unit sales highlights the lack of breadth to recovery in new housing indicators in 2013.

The composition of the latest new home sales results sheds light on this situation. A trend decline in multi-unit sales (following strong growth throughout 2012) has been in evidence for a large part of 2013 thus far, while detached house sales have stalled somewhat in most recent months (though largely due to the disappointing result in July). That aside, it is actually encouraging to see that detached house sales experienced a synchronised increase across the surveyed states in the month of August 2013, with strong increases in New South Wales and Western Australia – areas we expect will drive continued recovery in the coming months – as well as in South Australia.

The overall upward trajectory in detached house sales will need to continue, especially in the face of multi-unit sales trending downward and thus weighing down on total new home sales. There is certainly much potential for growth in detached house sales given that financial year 2012/13 represented a third consecutive year of decline in sales volumes.

While very low interest rates provide necessary impetus for the trend of recovery to continue, we have previously noted they are insufficient to ensure the volume of new home sales will return to healthy levels while key structural barriers remain unaddressed. Three factors; a lack of readily available land, a tightening of skilled labour and excessive (and inefficient) taxation, are likely to (hopefully only temporarily) impede growth in sales volumes beyond the medium term, particularly in the key markets of NSW and WA.

In the month of August private detached house sales increased by 10.2 per cent in Western Australia, 8.2 per cent in South Australia, 7.4 per cent in New South Wales, 3.6 per cent in Queensland, and 2.4 per cent in Victoria. Over the August 2013 ‘quarter’, detached house sales increased in three of the surveyed states – NSW (+9.1 per cent), Victoria (+21.8 per cent), and SA (+1.8 per cent). Detached house sales fell over the three months to August 2013 in Queensland (-4.4 per cent) and WA (- 1.9 per cent).

That’s looking like a weakening trend to me. And detached houses don’t reassure:

As apartments fall away:

Rising established house prices and a stalling new dwelling recovery going into a capex cliff. This is economic management at its worst.