Back to back declines in new home sales: CommSec's Savanth Sebastian

GUEST OBSERVER

New home sales declined by 4.4 percent in May after falling by 4.7 percent in April. The decline reflected a fall in detached house sales (-6.7 percent) but sales of ‘multi-units’ rebounded (+4.9 percent).

The new home sales data is important for housing-dependent companies such as builders, developers and retailers.

What does it all mean?

The latest weakness in new home sales resonates with all the other data on the housing sector - in particular the data on home loans, which has been decidedly more mixed in the past few months. It is clear that housing activity is consolidating with potential home buyers being more circumspect on purchases – a result which is encouraging, as it should ensure a much more sustainable housing market.

Interestingly the data is for May and would not fully factor in the surprise decision by the Reserve Bank to cut the cash rate, and the subsequent decision by the banks to pass it on to mortgage rates. It is likely that the rate cut and the speculation of low interest rates over the medium term will support demand for property.

 

Importantly the pipeline of new home building remains solid and should support an array of sectors and broad- based activity. The latest data doesn’t have a great influence on the next interest rate decision. The Reserve Bank is determining whether lower-inflation Australia can justify having an interest rate structure closer to those in other major advanced economies.

 

 

What do the figures show?

 

New home sales

Total seasonally-adjusted new home sales declined by 4.4 percent in May 2016 after sliding by 4.7 percent in April. The decline in total sales was reflected in a decline detached house sales (-6.7 percent) but sales of ‘multi- units’ rebounded (+4.9 percent).

The Housing Industry Association reported: “In the month of May 2016 detached house sales declined in three of the five mainland states: New South Wales (-11.5 percent); Victoria (-8.2 percent); and Queensland (-11.0 percent). Detached house sales increased in South Australia (+3.8 percent) and in Western Australia (+5.4 percent).”

What is the importance of the economic data?

The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia's largest 100 home builders.

The survey covers around 14 percent of the home building industry.

Savanth Sebastian is an economist for CommSec