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new homesHome owners are starting to feel the squeeze of successive interest rate rises, and new home development is cooling.

Figures released by the Housing Industry Association yesterday show that new home sales fell by 0.2 per cent in November.

It deepened a 2 per cent drop over the three months to November, and sales were down 11 per cent compared with the same period in 2009.

The association said demand was hurt when the Reserve Bank raised interest rates by 100 basis points last year, some banks added another 20 basis points to home loans, and the first home buyers’ grant shrank.

The association’s chief economist, Harley Dale, predicted the housing sector would weaken further this year. But the strengthening dollar could give mortgage holders some short-term relief. Economists believe the dollar will not fall against the US dollar until the end of March, keeping inflation in check and delaying any interest rate rises.

”Obviously a period of interest rate stability is going to be beneficial to the housing sector and might hopefully prevent a weak 2011 from becoming even weaker,” Dr Dale said.

”But I suspect we will probably see some renewed weakness in housing indicators over the next three to six months as we see the lag impact of the November rate hikes, and as we also continue to struggle with an environment where finance is very hard to obtain.”

The Reserve Bank raised its benchmark cash interest rate to 4.75 per cent at its November meeting. In the same month detached new house sales increased by 6.2 per cent in NSW and 1.5 per cent in Western Australia. But sales fell 0.2 per cent in Victoria, 10.4 per cent in Queensland and 0.8 per cent in South Australia.

Dr Dale said the federal government tripling the first home buyers’ grant to $21,000 for new houses had increased building activity in late 2008 and 2009, but sales had halted last year when the grant reverted to $7000.

”We didn’t really see a ramping-up of second-, third- and fourth-home buying activity to fill the void, and so the net outcome was the deterioration in home building conditions.”

Story by Jared Lynch, www.domain.com.au

Tags: investment, marketing, news, property, real estate, research

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