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New home sales drop

New home sales have dropped for the first time in five months, in July 2013, according to the Housing Industry Association (HIA).

“There has been strong upward momentum to new home sales since the record lows plumbed in 2012. One monthly fall, while disappointing, does not really change the story,” said HIA Chief Economist, Dr Harley Dale. “That having been said, the re-emergence of a sustained decline for new home sales over the second half of the year would obviously be a negative signal for residential construction and the wider Australian economy.”

New home sales fell 4.7% in July 2013 – the first fall since a 5.3% drop back in February.  Detached house sales slumped by 6.4%, while sales of multi-units posted a strong turnaround from a 17.5% fall in June to a 7.2% rise in July.

Mr Dale said we need to watch the rest of this year to see if growth is coming on strong, or whether the recovery is just at reasonable levels, still well short of healthy. Across the states, Western Australia saw the biggest falls in detached housing sales – dropping 10.8%, perhaps on the back of the end of the resources boom, while Queensland went against the trend, jumping 12.6%, reversing three months of decline.

The sales drop could just be a temporary pause, and building materials companies like Boral Limited (ASX:BLD), CSR Limited (ASX:CSR), James Hardie (ASX:JHX) and Adelaide Brighton (ASX:ABC) will be hoping the next few months results are better.

Foolish takeaway

With record low interest rates, and potentially a new majority government in 9 days’ time, consumers could be expected to heave a sigh of relief and start spending again. That would be good news for home builders and building materials companies.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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