New home sales rebounded by 4% in June after boosted by a healthy jump in sales for unit and apartments according to the latest data from the Housing Industry Association.
Strong demand for units push sales up by 15.5% while detached house sales climbed by 2.6%.
"New homes sales have rebounded off nine month lows to post strong sales over June," said Savanth Sebastian, Equities Economist, CommSec.
"Housing demand continues to outstrip supply, and any talk by the Reserve Bank of an end to the rate hikes is likely to see a significant pickup in investor interest in the housing sector."
Sebastian said it is looking "less likely" that the Reserve Bank would be required to raise rate any time soon, in light of the economy remaining weak and business sentiment tracking the demise in consumer sentiment.
"While the latest data is encouraging, we are still not building enough houses and apartments, despite a migrant-driven population boom," he said.
"In this sort of environment, rents and house prices are likely to rise even further. As property prices increase across Australia and the sharemarket continues to languish, investors are more likely to switch from shares into property. The strong rental yield on investment property is likely to be an added incentive."
Home sales rose by 20.2% in NSW, 16.6% in WA, and 3.5% in SA, and dropped 9.8% in Queensland and 3.7% in Victoria.
This data is coming off a "very weak base", however, and Sebastian warned that strong sales in coming months would be required to improve investor confidence.
"Overall, the relative lack of home building will keep upward pressure on rents and house prices," he said.
"Residential property was the best-performing asset class last financial year, and by all accounts, the good performance is set to continue."
He added that unless there is a significant pickup in spending, the RBA is likely to remain on the interest rate sidelines for the rest of the year.
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