Jump in new home sales

Could this be the start of a housing recovery?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published November 29, 2012 1:10 pm AEDT

Sales of new houses rose 3.4% in October, ending a three-month run of falls, according to a Housing Industry Association (HIA) report released today.

The improvement came after sales fell 3.7% in September, 5.3% in August and 5.6% in July. A massive jump in new apartment sales boosted the housing market in October, rising 31.4%, but settlements of apartment projects can cause wild swings from month-to-month.

Detached housing sales fell by 2% in October, the fifth fall in six months, with Victoria recording a big fall in sales by 12.1%.

HIA's chief economist, Harley Dale said, "A 3.4% increase in new home sales in October is a modest result, but at least it's a move in the right direction."

He added, "We need to see evidence emerge in coming months of a stronger, broader based recovery for new home building. The fact we don't have that evidence now is precisely why the Reserve Bank of Australia (RBA) should cut interest rates next Tuesday."

Home builders, construction companies and building supplies companies like Boral Limited (ASX: BLD), GWA International Limited (ASX: GWA), CSR Limited (ASX: CSR), Brickworks Limited (ASX: BKW) and AV Jennings Limited (ASX: AVJ) will be hoping this is the first real sign of improvement in the building industry, after seeing construction activity hit 10-year lows.

Back in October, we suggested it might be the best time to buy a house in three years, on the back of low interest rates and falling house prices. We may have got our timing wrong – now might be the best time to buy a new house in many years, especially if you live in Victoria.

The Foolish bottom line

Should the RBA cut rates next week, and the banks pass on most if not all of the cut to borrowers, we could see new home sales continue on their upwards path, as buyers look to take advantage of the very low mortgage interest rates.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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