Green shoots in the housing market?

2nd consecutive monthly rise in new home sales suggests this might be the start of a recovery in the construction sector

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 January 9, 2013 3:49 pm AEDT

In good news for the beleaguered construction industry, the sales of new homes rose 4.7% in November, its second consecutive rise, in an encouraging sign for housing activity in 2013.

Before we get too carried away, the volume of sales is still 15.7% lower than in 2011, according to the Housing Industry Associations' (HIA) New Home Sales report.

Perhaps surprisingly, both Western Australia and Queensland are expected to perform well this year, but recorded declines in November, indicating that 2013 may not be a great year in those states.

Still, building construction and supplies companies like Boral Limited (ASX: BLD), CSR Limited (ASX: CSR), GWA International Limited (ASX: GWA) and Reece Limited (ASX: REH) will likely be fairly happy with the rise – as long as the trend continues. After seeing construction activity hit 10-year lows, Boral chief executive Ross Batstone said last year that conditions in the building and construction sector were the worst he had seen in 20 years.

Official interest rate cuts of 0.25% by the Reserve Bank in October and December last year may be spurring on the construction industry, and many economists still expect further rate cuts to come in 2013. Since November 2011, the RBA has cut rates by a total of 1.75%, although most of that has not been passed on to borrowers by the banks.

Australia's love affair with the traditional house hasn't waned, with detached housing sales jumped 7.7% in November, while apartment sales fell 6.9%. Although that may have something to do with a possible oversupply of apartments, or the attractiveness of new first home buyer packages in some states.

The Foolish bottom line

With the resources boom seemingly coming to an end – despite the price of iron ore rocketing above US$150 a tonne overnight – other sectors of the economy will need to work hard to provide economic growth – just maybe it's construction's turn in 2013.

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Motley Fool writer/analyst Mike King holds no interest 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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