Rate hikes drive down home sales: HIA

The Housing Industry Association (HIA) New Home Sales report has revealed that new home sales fell 4.8 per cent nationally.

HIA chief economist Tim Reardon stated sales remain at “rock bottom levels” and the poor result in June leaves sales in the 2022–23 financial year down by 33.2 per cent compared to the previous year.

Sales over FY22–23 declined across all large states, with NSW leading the downfall with a drop of 56.1 per cent, followed by Queensland at 38.5 per cent, Victoria at 31.2 per cent, Western Australia at 12.1 per cent, and South Australia at 2.8 per cent.

Mr Reardon stated the Reserve Bank of Australia (RBA) raising the cash rate over the past year has resulted in a “significant decline in the volume of new home sales”.

“This will result in the least number of new homes commencing construction for more than a decade in 2024,” Mr Reardon added.

“The last year has seen the impact of a 4 per cent increase in the RBA’s cash rate filter through to the new home market, compounding the impact of soaring construction costs across the industry.”

In addition, a large number of existing projects are being cancelled, while buyers are unable to gain finance as interest rates and construction costs rose since contracts were signed, according to Mr Reardon.

The lack of new work entering the pipeline will mean fewer projects being commenced, Mr Reardon added, while the volume of work under construction has shrunk rapidly from late 2022.

“This will occur at the same time that Australia has a pre-existing shortage of housing, and overseas workers and students return to Australia in record numbers,” Mr Reardon concluded.

“Addressing the shortage of housing requires policymakers to stop increasing the cost of new homes through taxes and regulatory imposts. The more homes are taxed, directly or indirectly, the fewer homes will be built.”

Where are interest rates heading?

Economists from the major banks are mixed on their views on what the RBA will decide to do during the upcoming August meeting.

At the time of writing, the Commonwealth Bank of Australia (CBA) called one final rate hike to peak the cash rate at 4.35 per cent, Westpac maintains that the August decision will be “balanced” with a peak of 4.6 per cent, with National Australia Bank (NAB) in agreeance, while ANZ has forecast an extended pause at 4.1 per cent.

[RELATED: Mortgage costs weighed on RBA’s cash rate decision]