New Home Buyers Cautious

New home sales levels remain higher than last year – despite a 4.6% decline in June,  according to the Housing Industry Association.

Its survey of Australia’s largest volume home builders shows sales dropped 4.6% in June but remain 18.4% higher than the previous financial year. Over the past 12 months, new home sales are up in all states, with the biggest increases in Victoria (29.5%) and New South Wales 19%.

HIA Chief Economist Tim Reardon says the June figures don’t represent a drop in the need for more housing in Australia but are instead a sign that buyers are becoming more cautious in response to higher borrowing costs and Federal Budget changes to property investment taxes.

“The consequence of recent policy announcements is that more than 80% of builders expect commencements of new homes to fall by at least 5%,” he says.

Reardon says the prohibition of borrowing to build a new home by some superannuation funds is also expected to have an adverse effect on sales, particularly in the apartment market.

The HIA’s latest New Home Sales report shows a 50% increase in cancellations of new home sales contracts in June compared to the previous month.

Reardon says it is too soon for the budget decisions to have this impact on cancellations and it is likely caused by rising interest rates constraining borrowing capacity and conditional finance being revoked.

“Builders anticipate that a further 2,500 contracts to build a new home that have been signed by Self-Managed Super Funds will be cancelled in coming months when the Budget legislation comes into effect,” he says.

“The coming months will show whether recent weakness in sales reflects a temporary loss of confidence or a more prolonged period of reduced investment among new home buyers.”