New home sales fell sharply over the September quarter, according to figures from the Housing Industry Association, even though sales edged up in September itself. For property investors, a drop in new home sales is a signal about buyer confidence and borrowing conditions, which matters to anyone weighing a new build.
What happened
Hotspotting reports on the HIA's new home sales report, which covers the largest volume builders in the country. New home sales rose 3.4% over the month but were down 17.5% for the September quarter. The story describes the quarterly result as the lowest in 18 months.
HIA chief economist Tim Reardon links the fall to rate rises, tax increases and wider economic doubt. He also warns against reading the modest September lift as a turning point. In his words, the lift "should not be mistaken for a turning point in the market". Industry feedback, he says, points to weak showroom traffic, inquiries, lead flow and sales conversion.
Cancellations of new home contracts rose slightly. Reardon describes this as normal when rates are rising, since buyers can lose the conditional loan approvals they need to build.
By state, the story reports declines across every jurisdiction it lists. Queensland fell 26.3%, Victoria 23.3%, New South Wales 17.4%, South Australia 7.6% and Western Australia 1.7%.
What it means for property investors
New home sales measure buyer demand for new homes. They do not measure how many homes are available to rent or buy. The sales figures in the story cannot show on their own how much stock is on the market, so they say nothing on their own about the level of supply. Any claim about supply should be checked against a vacancy rate or a stock figure, with its source.
Reardon's reasons are about conditions: interest rates, taxes and uncertainty. Each one can affect an investor's borrowing capacity, holding costs and the rent a property can realistically achieve. For a new build bought during construction, the gap between signing and settlement is the period when those conditions are most likely to change.
The cancellation point is worth understanding on its own. A conditional approval is not a final one. If circumstances change between contract and settlement, a lender may reassess the loan, which is why it helps to ask a licensed broker which conditions apply and what happens if a lender changes its position.
The state figures also vary a lot. A fall in one state does not mean the same thing in another, because local pricing, land supply, rental demand and approval processes differ. An investor looking at a particular growth corridor should rely on local rental evidence and an independent rental appraisal, not a national sales figure. Rental income should be treated as realistic rather than assumed, and vacancy is a real consideration in any budget.
What to look at next
Watch the next HIA monthly and quarterly releases to see whether the September lift continues or whether the quarterly trend holds. One month of data is a small sample, and the story itself describes the recovery as modest.
Look closely at the conditions attached to any finance you are considering. Ask a licensed mortgage broker how a loan is assessed during a build, what a lender would review if circumstances change, and how long an approval remains valid.
Test your numbers under cautious assumptions, such as lower rent, a vacancy period or a higher repayment. An independent rental appraiser can give a local rent view, and a licensed financial adviser or accountant can help you understand how the overall position would cope with those changes.
If you want to talk through how a new build might fit your situation, you can book a free call with the EWC team. You can also read more on the Insights page.
General information only, not personal financial advice. Speak with a licensed adviser before acting.