New house demand experienced a significant rebound in May with sales activity already trending towards pre COVID–19 levels and showing relative resilience despite the collapse in purchaser sentiment and severe deterioration in employment conditions that occurred just one month prior.
Melbourne and Geelong growth areas recorded 1,093 sales in May. A remarkable increase of 451 lots or 70% on the previous month, albeit coming from a low base. It was also 4% higher than March figures with the two months sharing a comparable level of purchaser sentiment.
Greater clarity around employment and income security has been the impetus behind improved confidence for people entering the new house market, augmented further by historically low borrowing costs and the return of more generous buyer incentives from developers. Additionally, the purchasing process benefitted from the easing in social distancing restrictions during May that allowed land sales offices to reopen, accommodating up to ten visitors simultaneously.
However, fragility in new house demand remains, manifesting itself more so in the amount of debt purchasers are willing to take on. Consequently, lot prices continued their decline from the previous month with the median lot price contracting by a further 0.6% over May to $312,000.
It is hoped this price decline will subside with the introduction of the HomeBuilder scheme by the Federal Government in early June. The scheme provides eligible owner occupier buyers with a $25,000 grant when purchasing a new house/land package, and will aim to stimulate lot sales activity. To comply with the tight construction timeframe criteria of the scheme, demand will likely shift to titled/near titled lots, benefitting mature projects as opposed to those that have only recently entered the market.