The residential construction industry in Australia has sunk to recent lows with the latest data showing sales of new homes in March falling to levels not seen in more than a decade.
On a seasonally adjusted basis, the overall volume of new home sales throughout Australia dropped by 9.4 per cent in March, according to the HIA – JELD-Wen New Home Sales report. The report, based on a survey of Australia’s 100 largest builders, showed the seasonally adjusted number of new home sales coming in at less than 5,500 – far less than totals recorded in any other month in recent years.
Detached house sales dropped by 9.7 per cent during the month while multi-unit sales fell by 6.9 per cent.
HIA Chief Economist Harley Dale says the outlook for housing remains weak and adds that the impact of continued weakness in housing and construction is spreading to other areas of the Australian economy.
”Leading housing indicators such as new home sales are pointing to ongoing deterioration in already very weak new home building conditions,” Dale says. “That situation is in turn having a major negative impact on manufacturing and services sectors.”
No state was spared the malaise, with sales of new detached houses falling by 15.3 per cent in Queensland, 12 per cent in Western Australia 9.7 per cent in New South Wales, 4.7 per cent in South Australia and 4.6 per cent in Victoria.
Big Cut in Rates Now More Likely
Prior to the latest figures, a cut in official interest rates during tomorrow’s Reserve Bank board meeting was already a virtual certainty. Since the bank’s board meeting in April – minutes from which indicated that future interest rate cuts would be on the cards depending on how economic and inflation data panned out during the month – figures relating to building approvals, manufacturing and leading indices of the Australian economy have painted a very bleak picture. Furthermore, CPI data showing virtually zero inflation has added further support for the notion that the inflation outlook is under control, and that interest rate cuts are now necessary in order to boost the economy.
The only real question has been the extent of the cut. Previous editorials on this site have suggested the RBA would opt for a smaller cut of 25 basis points followed by further cuts in subsequent months depending on the outcome of the federal budget. Given the magnitude of today’s figures, however, along with unexpectedly low figures for inflation and last month’s extremely concerning building approval figures, the odds of a larger 50 point cut have come down more.
A rate cut of some proportion is virtually certain. Whether it will be 25 or 50 basis points is anyone’s guess.