Theere was a sugre in new home sales in May. Can we trust it?
So wouldn’t you know it, there’s been a boom in new home sales.
According to Housing Industry Association (HIA) data, the volume of new home sales surged 29% in May.
Check out the chart. Look at that bounce! That’s now the highest level in over a year, reversing an enduring slow-bleed decline.
It’s almost comical really. *Boing.
What’s the deal? Has the market really turned that sharply?
April did appear to be a bit of a quiet month, so there’s a bit of pay-back in May’s figures.
However, May was also the election month, and this seems to be lining up with a bunch of data points we have that tell us that there was a real shift in sentiment in May.
Things really did seem to just turn on a ten cent piece.
HIA’s economist, Tim Reardon, is blaming Labor’s campaign to end negative gearing.
“The pickup in sales during May follows lacklustre results throughout the first four months of 2019. Federal Elections always impact market confidence and the discussion around new tax imposts on investors through an increase in Capital Gains Tax magnified this uncertainty in the first part of the year.”
This is becoming something of a narrative, but I’d be wary of overplaying the importance of the negative gearing factor. Sure, it’s probably part of the story, but the swing in sentiment has been too broad and too impressive to put down to just one policy setting, in my mind.
Particularly since we’re seeing the first stages of a much easier credit environment. To his credit, Reardon picks up on this:
“The resurgence in home sales was evident across all five states covered by the New Home Sales survey, suggesting a broad based improvement in housing market sentiment around the country.
“An easing of the credit squeeze, lower interest rates and an expectation that APRA will implement reforms to mortgage lending guidelines are also factors supporting the lift in sales activity.”
Yep. As I’ve said before, the stars are aligning for the property market right now. The market is bottoming and is ready to launch into a new growth phase.
And my theory is still that the lower end of the market is going to lead the recovery.
I think that’s why we’re seeing such a strong rebound in new home sales – they’re at the cheaper end of the spectrum, and tend to attract first home buyers.
And government stimulus is aimed (e.g stamp duty exemptions) and will be aimed (e.g the coming Federal first home buyer deposit scheme) at first home buyers and the cheaper end of the spectrum.
And we know that so far, the cheaper end of the market has been holding up best.
And I would expect that to continue. Premium markets tend to surge (and surge strongly) when the expansion cycle is more mature. Cheaper homes tend to lead recoveries.
And so as this expansion cycle continues, expect new home sales and cheaper home to continue to lead the way.