New home sales down 0.6% in December, HIA figures reveal

The number of new home sales in December fell by 0.6%, according to the latest figures from the Housing Industry Association, in a result that suggests the next six months in the housing market will be slow.

HIA economist Harley Dale says while there is a possibility there may be modest improvements in new home sales, the actual result depends on where interest rates move – and most people believe they will continue to rise in the second half of the year.

“If we were to get a reasonable period of stable interest rates, at the same time that values are relatively stable, then we may see a bottoming out and then a modest recovery in housing.”

“But the key is interest rates. The expectation is that interest rates will rise, and the second that expectation changes, then so will the outlook.”

However, most economists now expect any rate rises to be delayed into the second half of the year, mainly due to the impact of the Queensland floods and lower consumer confidence. This should delay any recovery in home sales.

“If you look at the final six months of 2010,” Harley says, “new home sales were down by 11%, so clearly we weren’t going into 2011 with momentum moving in the right direction when it comes to new home buildings.”

The new report shows new home sales fell by 4.4% over the 2010 calendar year. Although sales grew by 3.6% in the December quarter alone, the November rate hike means any sustained improvement was negated, Dale says.

In December, detached sales grew by 0.3%, while the sale of multi-units fell by 7.3%.

Detached sales increased by 3% in New South Wales, 5.8% in Queensland and 4.2% in Western Australia. Sales fell by 3.7% in Victoria and by 6.6% in South Australia.

Dale also points out the continued problems with supply, such as credit squeezes and long development backlogs, means there won’t be much building support for a recovery in new home sales in 2011.

“There are probably two elements in the outlook for housing in the next six months. There’s the outlook that if you have stable interest rates, and prices aren’t growing, buyers will dip their toes back in the water.”

“But you still have the lagged impact of rate hikes moving throughout the system. You have to have a rapid rise of confidence in building conditions to see growth in new home sales. The likelihood of this is quite weak.”

Dale says this means that in an already weak year, price growth will remain low.

“This will keep prices low, yes. People expect rates to rise… if the RBA detects a change and moves their expectations forward, that will be a new weight in home building sentiment.”