New home sales up 3% as mortgage growth flat lines: HIA and RBA

There is little for the housing market to cheer about following the release of weak February lending figures from the RBA and only a small improvement in new home sales as recorded by the HIA - JELD-WEN New Home Sales report.

Housing credit increased by 0.4% during February, following an increase of 0.5% during January to be up 5.3% for the year, the weakest annual growth in RBA records going back 34 years.

During February, new home sales increased by 3% but still remained at their lowest levels in 11 years, according to research by CommSec.

Detached house sales rose by 2.2% while more volatile multi-unit sales jumped by 10.5% to a combined estimated 4,000 sales for the month. However, this is well below the more than 7,000 sales recording in February 2011 and the 8,000 sales in February 2010.

Western Australia was the strongest-performing detached new home sales market in February recording a seasonally adjusted 12.8% increase followed by New South Wales (5.3%), Queensland (3.5%). Detached house sales dropped by 7.4% in Victoria.

For the three months to February 2012 new home sales have fallen by 5.6% to be 16.8% lower than the three month period to February last year with detached sales down 17%. Multi-unit sales are up 5.4% over the February quarter but down 15% for the quarter year-on-year.

Victoria’s new housing market has felt the brunt of the slump with an 18.3% drop over the February 2012 quarter with Queensland also faring poorly with new home sales down 11.3%.

Figures compiled by CommSec based on the latest APRA monthly banking statistics show that bank housing, personal and business loans rose by 5.7% over the year to February, the slowest annual pace in four months and below the long-term trend rate of 13% while bank deposits with Australian residents grew by 9.3% over the year to February, the fastest growth in five months but below longer-term trends.

“The Reserve Bank must remain alert to the trends and keep a rate cut on the table at next week’s board meeting,” James says.

HIA chief economist Dr Harley Dale says any bounce in new home sales in February was encouraging after an awful start to 2012.

“Furthermore, it was the continued decline in Victoria from previous record highs which pulled new home sales down in February, while there was improvement everywhere else.”

“Looking beyond just one month, however, there is much work to be done to see new home sales volumes back at healthy levels across the country,” he says.

Dale says there is evidence of the beginning of a recovery in Western Australia while the prospect of policy reform in New South Wales and Queensland increases the likelihood of a lift in new home sales volumes in these states through 2012-13.

“Obviously further interest rate cuts wouldn’t go astray in helping perpetuate this recovery,” he adds.

CommSec economist Savanth Sebastian says the latest new housing and mortgage figures indicate that Australian consumers and home-buyers remain “super-cautious and that mood is continuing to constrain activity for retailers and housing-dependent businesses”.

“While the Reserve Bank doesn’t seem in a rush to cut rates, the ongoing downturn in the residential building market certainly keeps another rate cut on the table – especially given that even housing credit is growing at the weakest levels in 34 years,” he says.

“A sustained lack of new building can have serious ramifications for affordable housing. Already vacancy rates across the country are low and given the ongoing lift in migration further building will be required to alleviate the pickup in demand. No doubt the lack of new housing construction will be closely assessed by policymakers.”

Total credit provided to the private sector by financial intermediaries rose by 0.4% over February 2012, to be up 3.5% for the year with business credit increasing by 0.4% (up 1.2% for the year) and personal credit up 0.3% (down 1.1% for the year).

Savanth says private sector credit data tends to be a good forward-looking indicator on activity, with an increase in borrowings usually following by an increase in spending in the next few months.

“In that context the lack of significant growth in business credit is disappointing. At present businesses are cashed up and content to use existing cash facilities and that trend is unlikely to change anytime soon.

“Overall the Reserve Bank seems comfortable with the current position of the domestic economy. Effectively policymakers have been depressing parts of the economy (like housing and the household sector) to ensure that there is enough spare capacity for the growth in business investment and the mining sector,” he says.

“The key for the Reserve Bank is to ensure that inflation remains in check as the recovery gains traction. As such CommSec does not expect the Reserve Bank to cut interest rates until at least May,” he says.