“Sales of new homes fell again in January, down by 12.8 per cent for the month, leaving sales in the previous three months a remarkable 46.7 per cent lower than in the previous year,” stated HIA’s Chief Economist, Tim Reardon.

The HIA New Home Sales report – a monthly survey of the largest volume home builders in the five largest states – is a leading indicator of future detached home construction.

“Sales of new homes have stalled in recent months as the adverse impact of the RBA’s rate increases continue to erode market confidence,” added Mr Reardon.

“There is no indication that the market has reached the bottom of this cycle with sales falling in all states. A further increase in the cash rate in February is likely to see sales fall further.

“Without an improvement in access to finance, or a lowering of rates, building activity will start to contract from late this year.

“Many buyers have been forced from the market by the higher rates, but even those buyers unaffected by the RBA’s actions are unwilling to purchase given the economic uncertainty.

“There are long lags in this cycle given the large volume of building work underway which will obscure the impact of the rate rises on the wider economy.

There is a risk that once the contraction in home building occurs, and slows activity across the rest of the economy, that it will prove difficult to stop.

“The RBA overshot interest rate increases after the GFC and in previous cycles, resulting in a roller coaster ride for the building industry. It appears that the RBA is set to continue this boom-to-bust cycle.

“The RBA doesn’t need to crush the economy in order slow inflation.

“The supply chain disruptions that caused the high inflation in recent years are easing for reasons unrelated to the RBA’s actions.

“The focus of policy makers should be on other tools to address inflation, not simply interest rates. Interest rates are a poor tool for addressing inflation and fiscal policy measures have been shown repeatedly to be better at managing the risks of embedded inflation.

“The RBA isn’t going to return the economy to stability by putting the building industry through boom-and-bust cycles,” concluded HIA’s Chief Economist, Tim Reardon.

For the three months to January 2023, compared to the same period the previous year, new home sales in New South Wales were down by 73.1 per cent, followed by Queensland (-53.9 per cent), Victoria (-41.6 per cent), and Western Australia (-21.7 per cent). South Australia has seen an increase by 2.0 per cent.