Gloom returns to housing market

Weak confidence is weighing on housing investments.New home sales plunged in July, ending three months of gains and pointing to more weakness in the real estate sector.

The Housing Industry Association new home sales report showed a 5.6 per cent fall in July, following a rise of 2.8 per cent in June. New home sales were positive in April and May, as well.

“Consistently weak consumer – and business – confidence is weighing very heavily on new housing investment, far more so than is the case for retail expenditure,” HIA chief economist Harley Dale said today.

“Combine that low confidence with very tight credit conditions and excessive taxation, and you have the unpalatable recipe for the recessionary conditions facing new housing,” he said.

New house sales dropped 5.5 per cent, while apartments sank 6.4 per cent in July, HIA said.

House sales fell in all states except Queensland in July. In New South Wales they slumped 6 per cent, compared with a 4.6 per cent decline in Victoria. In South Australia they fell 8.9 per cent, while in Western Australia they plummeted 14.4 per cent. In Queensland, they rose 11.1 per cent in the month.

The bearish read on new home sales comes even as home prices, measured by the RP Data-Rismark index, have posted two consecutive months of rises in June and July.

Auction clearance rates, an indicator of the health of the market, have been helped by a series of interest rate cuts by the Reserve Bank and the relative calm of the global financial markets in recent months.

Clearance rates were 62.6 per cent in Sydney last week and 66 per cent in Melbourne.

Analysts note, however, that activity in the housing market is expected to remain subdued when compared with the period before the financial crisis of 2008 and its immediate aftermath.

Before the global financial crisis Australian households routinely took out larger loans in the anticipation of further house price appreciation.

In the year to July, capital city home prices remain 2.6 per cent lower, RP Data said.

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