May 50 basis point cash rate cuts deliver little fillip to new housing market: HIA

New home sales rose just 0.7% in the month of May despite the RBA’s 50-basis-point rate cut at the start of the month, according to the May HIA - JELD-WEN New Home Sales report.

The rate cut – most of which was passed on by lenders – helped drive a 21.1% increase in sales of multi-units (apartments) over the month, but detached houses fell 2%.

The figures are based on the HIA’s monthly survey of Australia's largest volume residential builders.

AMP CAPITAL chief economist Shane Oliver says the May HIA results “confirm that the housing market remains chronically weak right now”.

“New home sales rose 0.7% in May but remain at very depressed levels confirming that mortgage rate cuts to date have not had much impact so far.

“Our assessment remains that, with Australian households now very cautious about taking on debt and having lost confidence in the outlook for house prices, against a back drop of ongoing global uncertainty and benign inflation, further cuts in the cash rate will be required over the next six months," he says.

Oliver expects the cash rate to fall to 2.75% by year end.

The only mainland state to record a seasonally adjusted increase in new detached sales was Victoria, with a modest 3.9% rise – mainly attributable to buyers rushing to secure the $13,000 first-home bonus, which ends on June 30.

Detached house sales fell by 6.3% in Queensland and were down by 5.5% in New South Wales, 4.7% in Western Australia, and 1.5% in South Australia.

"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," says  HIA chief economist Harley Dale.

Dale says it is encouraging to see a second consecutive increase in the sale of multi-units, a result which saw a lift of 11.6% over the May 2012 quarter.

"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," says Dale.

“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.”