New home sales rise 6.8% in November as interest rates decline, but experts warn still more work to do in 2012

Consecutive interest rate cuts have boosted the property sector with new figures from the Housing Industry Association showing new home sales rose by 6.8% in November, in a second consecutive monthly rise in sales.

However, the result comes alongside a pessimistic result from the Australian Industry Group-HIA performance of construction index, which showed that although the pace of activity continued to improve, industry activity still contracted.

HIA economist Harley Dale says the improvement is directly tied to last year’s consecutive interest rate cuts.

“The improvement is being driven by an increase in detached house sales, with the multi-unit market quite weak again.”

“But this shows we’ve had two months of improvement, a modest rise in October and quite a healthy one in November.”

The figures show detached sales rose by 0.9%, driven by sales in New South Wales and Victoria. Multi-unit sales, however, fell by 17%.

Detached sales rose by 22.8% in New South Wales, 11.6% in Victoria, 5.7% in Western Australia and 4.7% in Queensland. Sales fell by 11.3% in South Australia.

However, Dale points out this is coming from a low base – sales in September were at their lowest in several years, and the construction industry is still suffering. But he also says that despite the industry recovering from such a low base, the statistics are encouraging.

“The interest rates are what we’re putting it down to. And really, if we hadn’t had a recovery afterwards that would have been more surprising. We’re encouraged that the first month of a rate cut we see an increase.”

“The question remains, however, can this be sustained in the long-term? We still have a long way to go.”

Economists suspect the RBA could even cut interest rates again next month. Dale says another rise in sales for December, coupled with a February interest rate cut, would start the year off on a good note.

“If we see that, we can start talking about the fact we’re moving in the right direction. It’s nice to have some better news to release at the start of the new year.”

However, it isn’t all good news. The performance of construction index increased by 1.4 points to 41 in December, still below the 50-point level separating expansion from contraction. Engineering construction rose to 51.3, but home building fell to 32.9.

Australian Industry Group director of public policy Peter Burn said in a statement the result shows how the multi-speed economy is still playing out, with the engineering sector speeding ahead thanks to the mining boom while residential construction lags behind.

“The increased pace of contraction in the house building sub-sector in December remains deeply concerning.”

“Nevertheless, the easing of the pace of contraction in overall activity and in new orders across all sub-sectors, serve as glimmers of hope that 2012 may see a return to more balanced growth across the industry.”

Dale says although he hopes for more sales in December, “the PCI is still looking very weak, and reinforces how much work there is left to do in 2012”.