Growth in new homes sales declined in May, and further falls are anticipated, as rising interest rates begin to bite.
The Housing Industry Association monthly new home sales report – a survey of the nation’s largest home builders in the five largest states – showed a decline of 5.5 per cent in May compared to a month earlier.
HIA economist Tom Devitt said the result was not surprising in a month containing both a federal election and an interest rate hike.
He said while sales were strong during the first months of 2022, ongoing increases in interest rates are expected to bring this boom cycle to an end.
Get Crikey FREE to your inbox every weekday morning with the Crikey Worm.
“The impact of rising rates will be compounded by the ongoing increases in the cost of construction and land, forcing up the cost of a new house and land package,” Mr Devitt said.
But he said there is a significant volume of work under construction and elevated levels of work approved but not yet commenced.
This will see a significant lag before the rise in the Reserve Bank of Australia’s cash rate adversely impacts on the number of new homes commencing construction.
“The lag from when a rate rise results in a decline in starts can be as short as six months, but in this cycle, it could be more than 12 months before the volume of starts fall due to the rise in rates,” he said.
The RBA followed up on its 25 basis point increase in May this week with a further 50 basis point hike in the cash rate, taking it to 0.85 per cent.
The big four banks were quick to pass on the increase in full to their variable rate mortgage customers.
The RBA has warned a further lift in the cash rate can be expected in coming months as the central bank tries to tame raging inflation.
Victoria led the decline in new home sales in May, dropping by 12.7 per cent, followed by NSW and Western Australia, down 12.2 per cent and 0.8 per cent respectively.
However, sales rose 8.8 per cent on Queensland and were up 12 per cent in South Australia.