New home sales stifled by stricter lending rules

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New home sales have been declining throughout the year, and sales in recent months are also slowing down due to the credit squeeze, according to a new study.

The Housing Industry Association (HIA) New Home Sales report, which is a monthly survey of the largest-volume home builders in the five largest states, showed that the number of sales during the three months to October this year is down by 10% compared with the same time in 2017.

Geordan Murray, HIA acting principal economist, further revealed that access to finance constraints also hurt other market indicators.

“In the market for established homes, the credit squeeze has been reflected in a material drop in transaction volumes and falling prices. In the new home market, we are seeing fewer new builds going ahead,” he said. 

Murray highlighted the role the Australian Prudential Regulation Authority (APRA) has to play in implementing stricter regulations that he said are now becoming a problem to the housing industry .

“When APRA imposed tighter rules on mortgage lenders at the height of the cycle, they were aiming to head off any growth in risky lending before it became a problem. To that extent, the added oversight has done its job, but the tighter lending environment is now stifling residential building activity,” he said. 

Looking at things in a wider perspective, HIA stated that the upcoming September quarter GDP result is likely to show that that cooling home-building activity has stifled economic growth.

“With the Hayne Royal Commission scheduled to release its findings early next year, there is a risk that there will be further disruption to the lending environment in 2019. Any further tightening in home lending risks becoming a destabilising force in the housing market,” Murray said. 

Private detached-house sales increased in Victoria and Queensland in October by 4.9% and 2.5%, respectively.

New house sales in all other mainland states, meanwhile, dropped.  New South Wales’ sales were down by 4.9%. South Australia tracked lower by 5.6%, while Western Australia saw a decrease of 10.7%. 

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