Drop in new home sales to force upward spiral in rents

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Sales of new homes tumbled in February as property buyers grappled with the successive increases in interest rates, a new report has shown.

According to the Housing Industry Association, new home sales among Australia's largest builders and developers slumped by 5.3%, the weakest growth in six months. Sales of units and apartments sank by 7.5%.

Despite better sales data from NSW and Victoria, the sluggish performance of Queensland and Western Australia had dragged the overall numbers down, according to HIA.

"We saw a relatively big lift in sales in January, thanks to a strong boost from the resource rich states. However, as suspected, this situation has proven to be unsustainable," said Harley Dale, HIA's chief economist. "For Australia as a whole, there is no sign of any upward momentum in new sales or building approvals, while housing finance for new home building has been trending down for some time."

The 1.25% rate hike in the past seven months has weighed down buyers' sentiment and is not helping alleviate the already tight supply of new homes, according to Savanth Sebastian, equities economist with CommSec.

"The housing sector is not seeing new homes being built and the record growth in migration is likely to add further to the burden in the housing sector. Unless more homes are built, an already tight rental market will see rents spiral further, feeding back into inflation."

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