New home sales drop but set to recover: HIA

New home sales declined in Western Australia by 4.7 per cent in May, but the Housing Industry Association says conditions are right for the sector to bounce back by the end of the year.

The HIA-JELD-WEN New Home Sales Report, released today, showed, despite the drop in May, new home sales increased by a marginal 0.6 per cent over the three months to May, for a 9.7 per cent rise year-on-year.

HIA chief economist Harley Dale said the result came in the context of increasing housing affordability in Western Australia.

He said rising incomes, falling interest rates and declining prices in the established market were the main drivers of affordability in the state.

“Despite this latest monthly update, there are conditions west of the Nullarbor supportive of new home sales continuing their overall upward trajectory,” Dr Dale said.

Nationally, new home sales were up by 0.7 per cent in May, suggesting interest rate cuts by the Reserve Bank of Australia this year have not made a widespread impact on the sector.

"The impact of interest rate cuts at the end of 2011, together with the announcement of a 50 basis point cut to the Official Cash Rate on May 1 this year, has so far done little to spur new home sales, given the soft outcomes evident for detached houses," Dr Dale said

"We expect that through the second half of 2012 the aggregate impact of interest rate cuts in late 2011 and then mid-2012 will at the very least put a floor under new home sales, and other leading housing indicators which also remain very weak.

“Further interest rate reductions are warranted, but rate cuts can’t do all the heavy lifting,”

“Government investment and reform is required to complement the helping hand that lower borrowing costs should provide new home building in the second half of 2012, and the Federal government should be leading from the front.”