Home sales plunge

Home sales in Victoria dived last month as worries about the economy eclipsed the lure of lower interest rates.

Figures compiled by the Housing Industry Association showed home sales for the state plunged 9.2%, much more than the national slide of 1.8% for the month. Private home sales were also 10% lower than in September 2007.

Watch Natalie Craig's views on the market.

Clearance rates at auctions last weekend sank to about 50% as potential home buyers remained wary of taking on new debt as the economy falters.

The Reserve Bank cut interest rates a quarter of a percentage point in September, its first reduction in seven years, and followed up with a full percentage point cut earlier this month.

Analysts expect the RBA to lower rates again on Tuesday, stirring further demand among home buyers. Even so, HIA's chief economist Harley Dale doesn't expect a quick recovery in the housing market.

The housing figures follow a report released earlier this week that showed Victorian business conditions were at their worst level since 2001.

The National Australia Bank quarterly business survey revealed that conditions in Victoria moved from being clearly positive to clearly negative in the three months to September, the only state apart from Tasmania to experience such a plunge.

''The fact that (national) new home sales were still falling in September, their sixth drop in nine months, confirms the importance of the subsequent aggressive one percentage point cut in rates in early October and the announcement of a fiscal stimulus package,'' Mr Dale said, referring to the Rudd Government's $10.4 billion hand-out to spur demand.

In September, 1,740 private homes were sold  in Victoria, seasonally adjusted, down from 1,910 and 1,916 in July and August, respectively.

Even with the reduction, Victoria accounts for about 29% of the national total, with the tally about two-thirds more than its more-populous northern neighbour, New South Wales.

The national data showed a mixed picture, with sales leaping 15% in Western Australia and rising 4.6% in NSW, while Queensland sank 10.6% and South Australia dropped 9.7%.

Nationally, detached house sales are struggling, with the HIA data showing a  
2.3% drop in September, marking the eighth consecutive month of decline.

''There is cause for optimism that the worst may be behind us,''  HIA's Mr Dale said.

''With interest rates on the move down and a tripling of the first home owners grant for new dwellings (to $21,000), we would expect to see a bottoming out in leading housing indicators over the December 2008 quarter.''

The news was more positive for multi-unit developments, which rose 1.2% nationally in September, following August's 5.8% rise.

Markets are betting the Reserve Bank will slice another half percentage point off the official cash rate when the bank's board meets on Melbourne Cup Day. That would lower the rate to 5.5%, its lowest since May 2006.

Several economists are expecting interest rates to fall to 4.25 per cent by mid 2009, where they were in late 2001 following the September 11 terrorist attacks in the US.

BusinessDay with AAP