Recession fears for housing sectorby: Stephen McMahon From:...

Recession fears for housing sector

by: Stephen McMahon From: Herald Sun May 30, 2012 12:00am


The Housing Industry Association is calling for a concerted federal and state campaign to stop a longer-term slump in the new housing sector.
 

THE Reserve Bank must keep cutting interest rates to stop the housing sector sliding into recession, according to the nation's leading property industry group.

Despite a dramatic rebound in sales of new homes last month, spearheaded by Victorians, the Housing Industry Association is calling for a concerted federal and state campaign to stop a longer-term slump.

Industry experts warned Victorians were only flocking into the market for new homes ahead of the looming expiry of the First Home Bonus program.

The State Government scheme ends on July 1.

After hitting an 11-year low in March, the HIA survey showed new home sales climbed 6.9 per cent last month, seasonally adjusted.

The lobby group polls Australia's largest 100 builders for the monthly report.

In Victoria, sales of detached homes soared 17.2 per cent in April, compared with March, as buyers rushed to capitalise on the grants scheme.

Economists warned it was a "false dawn" and demand in Victoria remained weak.

"It is just a temporary bounce in Victoria and it will slip back again after the bonus goes," said HIA chief economist Harley Dale.

Under the grants scheme, the State Government pays $13,000 to first-time buyers of new houses, and a further $6500 to people who buy in regional areas.

After June, buyers that were eligible for grants totalling $26,500 will only receive the Federal Government's $7000 first-home buyers payment.

CommSec chief economist Craig James said the building sector needed some "fundamental solutions" and reforms.

Otherwise a recession in the house building sector would reverberate across the economy, Mr James said.

He said a rate cut would "only do so much in stimulating activity" and the Federal Government need to call a home building summit.

"It is clear that home building is weak, well below the averages over the past five years," Mr James said.

According to betting on futures markets, there is a 63 per cent chance that the RBA board will cut the official interest rate by 25 basis points when it meets next week, to 3.5 per cent.

TD Securities head of research Annette Beacher said the RBA was likely to pause and wait for the effect of this month's 50-point cut to flow through the economy.

Dr Dale said the housing sector was so weak, it could suffer a recession - broadly defined as two consecutive quarters of contraction - this year.

He implored the central bank to continue cutting rates next week but warned they were "not a panacea" for the industry.