New home sales in Australia weakened at the beginning of the year, down 2.2% in January, according to the latest figures from the country’s biggest builders.
It means the market is tailing off from the largest and longest new home building cycle ever but overall the outlook is still good, says the first key new housing update from the Housing Industry Association (HIA).
Detached sales fell by 1.5% following a similar decline of 1.6% in December last year, were down by 1.1% over the three months to January 2017 and are now 4% below where they were in January 2016.
Unit sales fell by 4.3% in January following an increase of 6.4% in December 2016 but are up 4.8% in the three months to January 2017 and are up 9% year on year, the data also shows.
Seasonally adjusted new detached house sales increased by 12.1% in Western Australia in January 2017 following a sharp dip of 9.1% in December. January sales were down by 6.8% in New South Wales, by 4.1% in Victoria, by 2% in Queensland and 1.4% in South Australia.
During the year ended September 2016, there were over 229,000 dwellings that commenced construction. The HIA, explained that while this is still an exceptionally high level of activity based on historical experience, the annualised level of commencements has eased since peaking at over 231,000 in the year ending in the March 2016 quarter.
This is supportive of HIA’s view that the current new residential building cycle is likely to have peaked in 2016. Despite the decline in the total number of commencements, the detached house segment of the market has proven resilient. There were 29,634 detached houses commenced during the September 2016 quarter, which makes a total of 115,953 commencements in the year up to this point.
The report says that the prevailing dynamics in the detached house market during 2015/2016 were a marked contraction in the level of activity in Western Australia counter balancing the ongoing resurgence in the Victorian and New South Wales markets.
While there were variations in other state and territory markets, the HIA believes that the new phase of the cycle which will have a fresh dynamic, suggesting that the headwinds afflicting Western Australia may soon subside and top growth in Sydney and Melbourne may slow.
From a national perspective, detached house commencements are forecast to ease by 1.7% in 2016/2017 ahead of a further decline of 7.3% in 2017/2018. After falling to a low of 104,800 starts in the 2018/2019 year, the level of detached house building is forecast to gradually improve.
The unit has weakened overall. After a very strong result in the March 2016 quarter, the number of commencements fell away quite sharply throughout the middle of the year. However, there are markedly different trajectories for the semi-detached market, including townhouses, row and terrace type dwellings, and the market for apartments in buildings of four or more storeys.
The number of commencements for semi-detached homes continued to grow throughout the year. In contrast, the number of commencements for apartments in high rise developments slowed as activity in Victoria and Queensland eased. The flow of new apartment projects getting underway in New South Wales has remained more buoyant and there is a record level of apartments in developments awaiting commencement.
There were a total of 25,202 multi-unit dwellings commenced in the September 2016 quarter, which is equivalent to 113,383 across the full year. HIA is forecasting that multi-unit dwelling commencements will remain at quite a high level in the 2016/2017 financial year, albeit with an annual decline of 11.3%.
Looking beyond 2016/2017 significant declines are forecast with a fall of around 25% in 2017/2018, and then a further 12% fall in 2018/2019. The 2018/2019 year is projected to be the low point of the cycle for multi-unit commencements, when 68,400 starts are forecast.
