Sales activity in the housing market remained on a downtrend by the end of 2022, with new home sales clocking declines of 4.6% quarterly and 42% annually in December.
According to Housing Industry Association (HIA), new home sales in New South Wales were down by 66.7% compared to the same quarter last year. This was followed by the declines in Queensland (49.9%), Victoria (36.4%), and Western Australia (30.9%).
Only South Australia reported an increase in new home sales over the quarter, up 13.9% from last year.
HIA chief economist Tim Reardon said these declines followed the fastest increase in the cash rate in the current generation.
“This slowing in sales will flow though to a slowdown in building activity in the second half of 2023,” he said.
“When this hiking cycle began, there was a significant pipeline of home building work under construction, and many more projects yet to even begin construction — this has created a significant lag in the RBA’s impact on employment across the economy.”
Furthermore, the rise in cash rate has seen many buyers of new homes falling short on their finances for their new project.
This resulted in around one in five recent new home buyers cancelling their new home building contract given their impaired finances.
“With one in five customers cancelling their new home building project each month, the pipeline of building work will be eroded quickly,” Mr Reardon said.
“Once this pipeline of new home construction work is exhausted, the full impact of the RBA’s rate increases will become apparent — this is expected to occur in the second half of 2023.”
Mr Reardon believes a cut in cash rate will be necessary this year to avoid an unnecessarily sharp downturn in building activity.
“The RBA will not restore the economy to stable growth by putting the housing industry through boom-and-bust cycles,” said Mr Reardon.
According to the latest data from Australian Bureau of Statistics covering the September 2022 quarter, the total number of dwellings under construction have reached record highs since December 2021.
The total number of residential properties under construction reached a new record of 244,479 in September.
Meanwhile, the number of homes reaching completion remains no higher than those being commenced with 29,177 new projects started during the quarter.
Housing Industry Association (HIA) senior economist Tom Devitt said supply constraints were holding back completion of these projects.
“Materials constraints have plagued builders over the last two years, but the shortage of skilled trades is the number one constraint,” he said.
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