Borrowing cost expectations and tax debate weigh on confidence
New home sales fell 20.3% in February, according to the Housing Industry Association’s New Home Sales report, though activity remained higher than a year earlier on a quarterly basis.
The monthly report surveys the highest-volume detached home builders across the five largest states and is used as an indicator of future detached construction.
“Nationally, sales over the three months to February were unchanged compared to the previous quarter and remain significantly higher than a year earlier,” said Maurice Tapang (pictured top), senior economist at the Housing Industry Association. “This reflects a steady recovery in new home demand over the past year rather than a sharp cycle turning point.
By state, Western Australia was the only market to record a monthly increase in February, rising 13.2%. Sales fell in South Australia (-32%), Queensland (-29.2%), Victoria (-25.4%) and New South Wales (-19%).
The result for February, Tapang said, should be interpreted in the context of both volatility and timing. The decline follows a strong January result and coincides with a material shift in interest rate expectations – factors that have likely contributed to the weaker outcome.
“At the same time, policy uncertainty has increased with discussion around potential changes to capital gains tax and negative gearing possibly contributing to a decline in market confidence,” the economist noted. “Similar declines in sales occurred prior to the 2019 election, the last time that an increase in taxes on investors was debated.
“Despite the adverse impact of the rise in the cash rate, and talk of increasing the taxation imposts on housing, demand remains stable given low unemployment and strong population growth. This has seen tight rental markets pushing established home prices higher.
“The coming months will provide clearer evidence on how sensitive new home demand is to higher borrowing costs in the current environment.”
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