New home sales slump in May as apartment glut looms

A second consecutive monthly decline in new home sales signals the start of a downturn, according to the HIA.

A man walking past signs advertising apartments for sale in Sydney. AFP

A second consecutive monthly decline in new home sales signals the start of a downturn, according to the Housing Industry Association, but one that should prove mild by historical standards.

The HIA new home sales report showed a 4.4 per cent slump in seasonally adjusted sales in May, on the back of a similar 4.7 per cent decline in April.

The weakness was dominated by detached housing, which declined 6.7 per cent, while sales of new apartments bounced 4.9 per cent.

The news again highlights the risk of an apartment glut in Australia, with ratings agency Standard & Poor’s and the Reserve Bank warning on the risks in recent months.

“There is growing concern over the large volume of new unit stock coming onto the market, in addition to the already-existing supply, particularly in inner-city postcodes. This is more pronounced in Melbourne and Brisbane,” S&P said at the turn of the month.

“The increase in supply of units, coming at a time of tightening in lending conditions, could raise settlement risk.”

The latest report found detached new home sales slid the most in New South Wales, a state whose housing market is dominated by capital city Sydney, which needs new stock to ensure its price boom doesn’t turn into a bubble.

Detached new home sales fell 11.5 per cent in NSW, with Queensland (-11 per cent) and Victoria (-8.2 per cent) the next weakest markets. Those three states house the three hottest housing markets in the country in Sydney, Melbourne and Brisbane.

The only increases were recorded in South Australia and Western Australia.

“There is nothing alarming to a reversal in the trend for new home sales,” HIA chief economist Dr Harley Dale said.

“There is a cyclical downturn ahead for new residential construction activity, as new home sales signal, but the early pullback will be mild by historical standards.”

He added the industry body expects the decline to pick up speed over the coming 12 months.

“We remain of the view that a decline in new dwelling commencements will gather momentum in 2016/17 and 2017/18, following four years of growth which has delivered enormous benefits to the broader Australian economy,” Dr Dale said.