New home sales provide another glimmer of hope for economy

Sales of new homes increased 3.9% in February as the increased first home owner grant helped spark the residential housing sector.

It was the second consecutive monthly rise and the first time new dwelling sales have topped 7500 since June last year.

Housing Industry Australia chief economist Harley Dale is particularly encouraged by a 4.7% jump in detached home sales in February. Detached home sales are now up 8% in the last three months.

Dale says the housing data provides a glimmer of economic hope. 

“I think the best signs at the moment are actually coming from the residential sector. The new home building sector historically is a leading indicator of what the rest of the economy is going to do.

“The grounds are there to expect that we’d start to grind out a recovery in the second half of the year.”

Dale says the enlarged first home owner grant has been a resounding success, with around 10,000 grants approved each month. Around 25% of these have been for new homes, which attract a grant of $21,000.

But the enlarged grants will end on 30 June and opinions are divided as to whether the Federal Government should extend the deadline.

Commonwealth Bank chief executive Ralph Norris has expressed concern about first home buyers stretching themselves just to take advantage of the grants to buy homes they cannot really afford, while employer groups want the housing stimulus to continue.

“We see merit in consideration of continuing the new home bonus part of the program, because clearly that boosts home construction which in turn boosts demand for labour and building materials,” Dale says.

“It’s having a tangible effect on the economy.”

Dale also says there is little evidence to support the idea that first home buyers are heading for trouble.

“We do need to be aware that in a rising unemployment market, these recent first home buyers are quite clearly more vulnerable. But there are some counter arguments as well. The average age of the first home buyer is much higher…and we know that lending conditions on the part of banks have been tightened considerably.”

He says a number of large volume home builders are reporting that one in two first home buyer inquires are falling over because the bank has refused finance.

Dale anticipates there could be rush of people trying to cash in on the grant in the coming months if it becomes clear it will not be extended.

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