Is this the end of Australia’s building boom?

Credit: Alex Livet

Australia’s housing boom could be coming to an end according to a report released today that spells trouble for a number of retailers.

New home sales (seasonally-adjusted) dropped by 9.7% in July 2016 according to a report by the Housing Industry Association (HIA). That comes after an 8.6% rise in June 2016. Perhaps alarmingly, ‘muti-unit’ sales crashed by 17.3% in July 2016 after two consecutive months of growth in May and June.

The HIA believes the cycle has peaked although short-term should hold up very well. However, the Association believes that as we progress through 2016/17, the uncertainty regarding the duration, timing and magnitude of a down cycle in new home construction will grow. As HIA says, “In all likelihood we will experience sharper falls in new home construction in both 2017 and 2018.

The report suggests there is potential for a substantial fall in 2017 – a view echoed by plumbing supplier Reece Limited (ASX: REH) in its recent annual results presentation. As CEO Peter Wilson noted, “Although we are expecting building activity to slow in FY 2017, the Reece Group is very well positioned to deliver on its FY 2017 objectives.

Several retailers have enjoyed a boom in consumer spending related to new homes including Harvey Norman Holdings Limited (ASX: HNV), JB Hi-Fi Limited (ASX: JBH), Nick Scali Limited (ASX: NCK), Super Retail Group Ltd  (ASX: SUL), GWA Group Ltd  (ASX: GWA),Beacon Lighting Group Ltd (ASX: BLX), and GUD Holdings Limited (ASX: GUD).

Sales of whitegoods, consumer appliances, furniture and fittings could fall if new housing construction slows.

The good times may well be coming to an end, and the retailers may struggle to repeat the strong results they posted for the 2016 financial year. Buyer beware.

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Motley Fool contributor Mike King has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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