New home sales have increased for a second consecutive month, but remain sharply lower than the same time last year, as the impact of higher interest rates continues to weigh on the market.
According to the HIA New Home Sales report, sales of new homes increased 9.4 per cent in May compared to the previous month, and 4.4 per cent over the quarter.
HIA Senior Economist Tom Devitt said sales of new homes across Australia increased for the second month in a row despite the ongoing increases in the cash rate.
“Despite this small rise in sales, they remain at depressed levels,” Mr Devitt said.
“Sales in the three months to May 2023 were more than 40 per cent lower than in the year before when interest rates started to increase, and 25 per cent lower than prior to the pandemic.
“This indicates that the slowdown in home building that is underway will continue for at least the next year.”
Sales of new homes in the three months to May 2023 compared to the same time last year are still down in most large states, led by NSW, which recorded a 63.6 per cent decline.
Queensland (down 52.9 per cent), Victoria (down 46.6 per cent) and South Australia (down 29.5 per cent) have also seen a sharp decline in new home sales, while, Western Australia was the only state to see an increase over the year – up 19.4 per cent.
According to Mr Devitt, the most significant contraction in sales is in NSW where customers are more sensitive to rises in the cash rate.
“Cancellations also remain elevated at a rate of 25 per cent in the last quarter,” he said.
“This means, for every four new projects a builder is recording, a previous project is being cancelled.”
According to Mr Devitt, the higher cash rate is likely to continue to weigh on the sector.
“The RBA’s rate increases will continue to hold down new sales and cause further cancellations as finance becomes unobtainable for an increasing number of buyers,” he said.
“The significant increase in the cost of land and construction across all jurisdictions over the past two years is compounding the impact of higher interest rates.
Mr Devitt said the additional costs of compliance with the National Construction Code, which come into effect this year, will further increase the cost of new home construction and dampen demand further.
“This combination of factors will see home building continuing to contract for at least the next 12 months to its lowest level in more than a decade,” he said.
