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New home sales slump 5%

After four consecutive months of rising growth, new home sales took a tumble in February, according to the Housing Industry Association (HIA).

Seasonally adjusted new home sales dropped by 5.3%, reflecting a 4.% fall in detached house sales and a large 11% slump in new multi-unit sales.

“These data are disappointing in the context of the growth in sales over previous months,” said HIA Senior Economist, Shane Garrett. “The broadly based decline in activity during February is a reminder of how delicate the nascent recovery in the housing industry really is,” he added.

Mr Garrett also noted that February’s fall shows how far housing market activity has fallen from levels just three years ago, with the industry struggling in the current economic environment.

Victoria saw detached housing sales fall by 14%, followed by a 7% slump in South Australia, with New South Wales down 2.8%. Western Australia and Queensland both saw small rises.

Mr Garret said yesterday that the Reserve Bank of Australia’s decision to keep official cash rates on hold means no respite for core sections of the economy, including residential construction and small business. He added that it was high time for the banks to take action to support activity in traditional economic sectors by cutting mortgage rates and lending rates for small businesses.

The fall in new home sales comes despite many developers offering incentives including cars, holidays, free landscaping and home decorating packages and cash rebates, in a bid to entice buyers back into the market. Stockland (ASX: SGP) has been offering gift cards and rebates worth as much as $30,000 in the eastern states, while Devine Limited (ASX: DVN) is matching deposits in South Australia and taking over the first year’s mortgage payments in Melbourne.

Foolish takeaway

Building materials companies are also feeling the pain, with CSR Limited’s (ASX: CSR) shares down 3% in mid-afternoon trade, while Adelaide Brighton’s (ASX: ABC) shares have dropped 2%. Only time will tell whether this is a small blip on the road to recovery in the housing sector.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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