New home sales slow in Australia but renovation market set to take off

New home sales in Australia are slowing down with the latest figures showing that transactions for detached houses increased in just two states.

Overall there was little movement in the market, up just 0.2% in February with approvals for new homes downy by 2.2%, according to the Housing Industry Association (HIA).

The figures come at a time when the HIA is predicting that home renovation will become an increasingly important part of the residential building industry over the next few years.

The figures show that detached house sales increased by 11.3% in Western Australia and by 5.1% in Victoria. But they fell by 12.6% in New South Wales, by 5.7% in Queensland and by 0.2% in South Australia.

The HIA is forecasting a decline of 2% in detached house commencements in Australia in 2016/2017 following a similar sized fall of 1% in 2015/2016. However, 2016 was the strongest year since the 1940s for new home building starts in Australia.

‘In 2017 we expect the profile for leading indicators such as detached house sales to slowly improve for Western Australia and South Australia. At the same time the volume of detached house sales on the eastern seaboard is expected to trend lower,’ said Harley Dale, HIA chief economist.

HIA senior economist Shane Garrett believes that the housing industry will become more dependent on work related to home renovations activity. ‘Many are surprised to learn that renovations currently account for about one third of all residential building work. By the end of the decade, renovations activity is likely to represent some 42% of all residential building activity,’ he said.

‘Detached house building in Australia reached very high levels between 1985 and 1995. This large stock of homes is becoming increasingly ripe for major renovations work. Added to the mix are remarkably low interest rates and the big home equity windfalls in Sydney and Melbourne, pretty ideal conditions for renovations demand,’ he explained.

‘At the moment, the one key difficulty for the renovations market is the fact that turnover in the established house market is falling. This is an important driver of demand, and prospects for renovations growth would be even stronger if transactions on this side of the market started to increase again,’ he added.

HIA figures show that renovations activity grew by 2.7% in 2016 to $33.06 billion but this is projected to slow to just 0.3% in 2017, before reaching 3.2% in 2018. Further growth in 2019 of 2.4% and in 2020 of 2.5% is expected to bring the value of home renovations activity in Australia to $35.94 billion.

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