The record rise in interest rates is continuing to weigh on new home sales, while a better than expected jobs report could mean rate cuts might not be on the way.
According to the HIA New Home Sales report, new home sales rose by 14.3 per cent in February, however, they were 46.8 per cent lower than at the same time last year.
Around the country, new home sales were down 76.6 per cent in New South Wales, 51.2 per cent in Queensland, 42.3 per cent in Victoria, 14.8 per cent in Western Australia and 6 per cent in South Australia compared to February 2022.
HIA’s Chief Economist, Tim Reardon said higher interest rates have been a key factor in reducing demand for new homes.
“Sales of new homes stalled late in 2022 as the adverse impact of the RBA’s rate increases continue to erode market confidence,” Mr Reardon said.
“When the cash rate started to rise in May 2022 there was a very large pool of work to commence construction.
“This pool of work yet to commence is shrinking quickly as new sales remain very low and the number of new projects entering the pipeline falls.”
Mr Reardon said higher borrowing costs are also leading to high cancellation rates across the country.
“Tighter access to finance and a higher cash rate is seeing many new home buyers withdraw from the market,” he said.
“Customers that received approval to build a new home early in 2022 are cancelling these projects as the cost-of-living bites and banks withdraw financing.
“Without an improvement in access to finance or a lowering of rates, the number of new homes commencing construction will slow later this year.”
Strong jobs report keeps pressure on rates
Markets had begun pricing in lower interest rates after the failure of Silicon Valley Bank in the US, as high interest rates have started to negatively impact the broader banking sector.
Australian interest rate markets are now pricing two rate cuts this year, however, the strong local jobs report has given more leeway to the Reserve Bank of Australia to keep interest rates high.
Markets are now expecting the RBA to keep rates on hold at 3.6 per cent in April, with a seven per cent chance of a 0.25 percentage point rate cut.
According to the ABS, more than 64,000 new jobs were added to the economy in February.
The new jobs pushed the unemployment rate down to 3.5 per cent from 3.7 per cent, the lowest level since the 1970s.
RBA Governor Philip Lowe said the jobs data were a key determinant of whether the board would deliver an 11th consecutive interest rate rise at its April board meeting.
According to Mr Reardon, the RBA is having a significant impact on the construction industry.
“The RBA isn’t going to return the economy to stability by putting the building industry through boom-and-bust cycles,” Mr Reardon said.