New home sales slump

Chris Zappone

October 29, 2009

Comments 9

Update New homes sales dropped in September, in a result likely to aggravate the country's housing affordability problems report shows today.

Nationwide homes sales sank 4.5 per cent in September, following a 11.4 per cent jump in August, according to data from the Housing Industry Association.

''The current level of new home sales points to a shallow recovery in residential building which will lag the underlying requirement for new dwellings,'' said HIA chief economist Harley Dale.

''Indeed there is a very real risk that costly delays in planning approvals and land shortages will combine to blunt the housing recovery, reversing the recent gains in housing affordability.''

Economists say a healthy pace of new home sales is needed in order to spur the building of new housing stock, which in turn will relieve the shortage and boost affordability overall.

Fresh data out today from the Australian Property Monitors showed national home prices increased 3.7 per cent in the third quarter, as investors crowded back into the market ahead of the reduction of the First Home Owner Grant boost.

August's increase was the highest in the survey's three-year history.

State by state

The Housing Industry Association and Commonwealth Bank first-home buyer affordability index, released last week, dropped 3.3 per cent in the September quarter, following a 5 per cent slide in the June quarter.

The volume of new home sales in New South Wales dropped 8.9 per cent, while in Victoria they dropped 12.7 per cent, HIA said.

In Queensland they increased by 1.1 per cent but fell by the same amount - 1.1 per cent - in South Australia.

In Western Australia, they plunged by 11.1 per cent, HIA said.

Quarterly gain

Although new home sales dropped in September, they were up by 4 per cent over the September quarter, the report shows, 24 per cent higher than the comparable period in 2008.

"The relatively healthy quarterly result confirms that there will be life in first-home buyer-induced construction activity into 2010," said Mr Dale. "The key now is to see further evidence of a recovery in trade-up buyer owner occupier interest in new homes in its own right, together with a turnaround in alarmingly low levels of investor activity."

"Without this situation, a further upward trend in new home sales over late 2009 and into 2010 will prove difficult to achieve," Mr Dale said.

Charter Keck Cramer senior economist George Bougias said measures of monthly sales are "oscillating wildly " because of the effects of the First Home Owners Grant being slowly withdrawn while investors have begun to move in.

''But the underlying fundamentals are we've got the shortages reflecting in the prices.''

Mr Bougias said the real issue for affordability is to increase the pace of construction in the years ahead, lauding Prime Minister Kevin Rudd's recently announced plans for the Commonwealth to take a more active hand in planning and development of cities.

He said Australia is experiencing record population growth at time of a housing shortage, which will only get worse under these conditions.

Charter Keck Cramer is an independent real estate consultancy that counts developers and banks among its clientele.

czappone@fairfax.com.au
Business Day

9 comments so far

Yes, arguably the First Home Owners grant should have been better targetted all along. It didn't even have a lower age limit when first introduced. It should have been only for new homes (as no real economic stimulus in simple change-of-owner for existing home), available only for 20-35yo people, with a fall-off to age 45, and subject to family taxable income upper limit. Arguably, if you were in a relationship with someone who did own property (though the property was not in your name), you ought to have received less as well. Many of the claimants were not the target audience, and most of the transactions simply created 'churn' (change of ownership of existing dwellings) rather than construction of new dwellings.
And one cannot comment on house taxation without mentioning the anti-growth up-front taxes imposed by states' stamp duty (and Feds through GST). Taxing gains upon sale, or even usage during ownership are always better ways to raise public funds, than adding an impost at the time of purchase. Moreover, high transaction costs prevent the efficient allocation of housing stock, with grandparents remaining in large houses, purely because of the taxation costs of moving into more suitable dwellings.

Commenter

Graeme Harrison (prof at-symbol post.harvard.edu)

Location

Sydney

Date and time

October 29, 2009, 12:11PM
Surely this is great news for affordability? To sell the houses, they will need to drop prices. Its not immigration that's the problem, its price, otherwise the immigrants would have snapped up these new houses. Immigration hasn't stopped or slowed!

Commenter

Brett

Location

Sydney

Date and time

October 29, 2009, 12:25PM
Chris

How is it said that investors rushed back after the decline of the home buyer grant? The grant did not decline until after the end of the third quarter, the period being measured. The third quarter ends on September 30, Chris.

Commenter

Maria Santa

Location

Sydney

Date and time

October 29, 2009, 11:46AM
Yep! And so they should drop. Our massively overpriced housing is unsustainable. It really annoys me when so much media focuses on the problem being 'lack of housing'. So that means it really doesn't matter how expensive houses get, everyone can afford them it's just the availabilty....Give me a break. Don't listen to that garbage folks, it's all scare mongering to keep the bubble inflated. Watch what happens now that the panic buying is receeding and interest rates are on the way up. Remember when lending rates were recently 9.5% and people were at busting point and sales were reaaaaally slow? Well history repeats but this time prices have jumped up, so it'll be much worse. Have a nice day:)

Commenter

Who foo dat

Location

Geelong

Date and time

October 29, 2009, 1:02PM
"Yes, arguably the First Home Owners grant should have been better targetted all along"
No, there can never be a reason for a policy as staggeringly destructive and stupid as the first homebuyers grant. It was simply a bribe directed at an economically illiterate (innumerate?) electorate. To be honest, Graeme Harrison, nothing you could have come up with would avoid the law of unintended consequences but more importantly your suggestions can't fix an inherently stupid policy. The housing market needs nothing but market forces to run smoothly as long as you have some semblance of monetary discipline. If you have central banks and governments running high inflation that is then hidden by a debased CPI measure you destroy your economy. Full stop. That is the story of the GFC (remember that all the mortgage related securities that really triggered the bust where created by the Wall St crooks because there was massive demand for some kind of "safe" positive yield in an era of negative real interest rates). The housing bubble is a particularly nasty effect of these incompetent policies and no amount of government tinkering at the point that the bubble takes off will help. The first home buyers grant was inflationary. Those responsible deserve the deepest condemnation. And that would be us, the voters.

Commenter

Woody

Date and time

October 29, 2009, 1:24PM
Chris I am very confused. Sales decrease indicating slowing demand yet worsening affordability? But sales for the quarter are increasing and prices are going up so is that why affordability is slipping?

Prices are increasing so where are the "recent gains in affordability"?

Are property prices going up good or bad? Are interest rates going up or down good or bad for property? Do low interest rates this quarter really increase demand even though interest rates are tipped to go up next quarter. I guess its a matter of perspective - do you already own property or not.

I find the reporting in the media pretty poor.

Commenter

Media Dude

Date and time

October 29, 2009, 1:45PM
Sounds like the HIA might be lobbying for more taxpayer handouts before too long. Can we please remember next time around that the boost did nothing for affordability, and perhaps next time use taxpayer funds to stimulate supply rather than demand? After all, the lobbyists keep on referring to the "housing shortage", so why on earth would there be a need to stimulate demand?

Commenter

Matt

Date and time

October 29, 2009, 2:34PM
Media Dude, you are right to be confused.
I'll give you some insight( Being an Analyst ). Each and every journalist out there are creating headlines by carefully extracting financial data that will build a case for doom and gloom.
To be honest , having moved from Europe , I am amazed at how gullible the Australians are . Inflated cash rates to attract foreign investment at whose expense. Yours and mine . Yes, we are heading for a big big crash in the home loan market .. It can be avoided but of course Kevin Rudd will ignore it ,so he can have his moment and falsely justifying his stimulus package.

Commenter

Honestcol

Date and time

October 29, 2009, 2:44PM
A few facts. Feel free to read on and speculate on what it all might mean.

1. The FHOG was increased last year, and interest rates have been unusually low.

2. Usually, around 10,000 first-timers buy houses in a given month; for most of 2009, it's been more like 15,000. In total, about 50,000 first-timers who might have bought houses in 2010 have now already done so.

3. New homes are mostly bought by first-time buyers.

4. Low-end prices rose over the past year.

5. The FHOG is being reduced, and interest rates have started to rise.

6. This year's intake of migrants won't buy; they'll rent. The migrants buying at the moment arrived a few years ago, when intake levels were lower.

7. Over the past 20 years houses have increased in size and now have fewer people living in them. We don't see hordes of people living on the streets. Studio apartments do not cost a million dollars.

8. The percentage of household income needed to service a typical mortgage is less than it was two years ago.

9. All of the people quoted in this story has vested interest in getting press coverage for their business.

Commenter

Phil H

Location

Ultimo

Date and time

October 29, 2009, 4:58PM