Doors close on new home sales

September 21, 2007 12:00am

NEW home sales tumbled in August after an interest rate rise exacerbated poor affordability amid a lack of supply, an industry body says.

Housing Industry Association figures show new home and unit sales among Australia's largest builders and developers fell 8.6 per cent in August to 7712 -- the lowest level since January when sales stood at 7963.

Detached home sales fell 8.9 per cent compared with the previous month, to sit at the lowest level since December last year.

Sales of apartments were down 6.8 per cent and continue to display a flat trend.

HIA chief economist Harley Dale said the main catalyst for the fall in new home sales during the month was the Reserve Bank of Australia's 25 basis point interest rate rise to 6.5 per cent at the beginning of August.

He said sales were always likely to fall, with July building approvals down 1.6 per cent, but the rate increase had added to the downside pressure.

"You had these specific factors of a rate rise and uncertainty out of the US on top of a difficult affordability environment," Mr Dale said.

Problems in the US sub-prime mortgage market spread in August to create an element of fear in global credit markets, resulting in a rise in interbank lending rates.

Mr Dale said the outlook for new home sales looked flat due to continued uncertainty about interest rates and global financial stability.

"New home sales are trending down again and a failure to arrest this decline could see sales levels hit fresh lows for the cycle by the end of 2007," Mr Dale said.

"There is a clear risk of another rise in interest rates in 2008."

The HIA survey showed the volume of new home sales was down in all states, with Victoria, NSW and Western Australia the worst hit.

Sales fell 19.1 per cent in Victoria, 8.5 per cent in WA, 7.6 per cent in NSW, 1.8 per cent in South Australia and 0.4 per cent in Queensland.

CommSec equities economist Martin Arnold said the August rate hike had delivered a heavy blow to the housing market.

"New home sales slumped, with prospective homebuyers put off by the further increase in the cost of owning a home," he said.

"The housing hangover is likely to remain for many months yet, as affordability issues plague the market."

The HIA new home sales survey is compiled from a sample of the largest 100 residential builders in Australia.

- AAP