The Housing Industry Association (HIA) believes that increases to the cash rate by the Reserve Bank of Australia have resulted in home sales reducing by 46.7 percent lower than the year previous.

Sales fell by 12.8 percent in January nationwide, with home sales down by 73.1 percent in New South Wales compared to the previous year, followed by Queensland (-53.9 percent), Victoria (-41.6 percent), and Western Australia (-21.7 percent). South Australia has seen an increase by 2.0 per cent.

“Sales of new homes have stalled in recent months as the adverse impact of the RBA’s rate increases continue to erode market confidence,” says HIA Chief Economist, Tim 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.”

Reardon believes that a slowdown in home building will halt activity across the entire economy, which may gain momentum.

“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 to slow inflation,” he says.

“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,” Reardon concludes.