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Housing industry heading towards recession: economist
30/05/2012 - An interest rate cut next Tuesday could fuel a flurry of activity in the housing market before the end of the financial year, when a series of first time buyer concessions expire. Colin Brinsden
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At its May 1 meeting the Reserve Bank of Australia (RBA) made the biggest single reduction in the cash rate since the depths of the global financial crisis, lopping 50 basis points off to 3.75 per cent.
Economists say speculation ahead of that rate reduction may have assisted a 6.9 per cent jump in April new home sales data released on Tuesday.
Despite this pick-up, the housing industry still believes home building is heading to a recessionary level in 2012.
"That's an unfortunate fact which everybody needs to face and which requires further interest rate cuts and immediate government action," Housing Industry Association chief economist Harley Dale releasing the latest HIA-Jeld Wen home sale figures.
He said governments needed to collectively act to revitalise new home building through reducing the sectors excessive tax burden and through an immediate injection of investment and funding.
Home building commencements were over 13 per cent lower than a year earlier as of December, while building approvals were down 15 per cent in the year to March.
A series of first home buyer initiatives in several jurisdictions will soon draw to an end, but are likely to have assisted a 17.2 per cent surge in Victorian new homes sales last month.
Victoria currently enjoys bonus schemes worth almost $20,000 for first time buyers in regional areas, which will wind up on June 30.
South Australia also has a $8000 grant that will be halved from from July 1, while there is a home builder's bonus in NSW and a home buyer concession scheme in the ACT, both ending on June 30.
Corporate spokesman for mortgage provider Loan Market, Paul Smith, said the end of these concession schemes could draw more first time buyers out over the next month.
"Another reduction in the cash rate ... next week could be an added incentive for first time buyers," Smith said.
Financial markets are fully priced for a 25 basis point cut in the cash rate, and a slightly greater than even chance of another 50 basis point reduction, when the RBA holds its monthly board meeting on June 5.
Commonwealth Securities chief economist Craig James agrees that while home sales have had a lift, overall activity remains weak, and noted the central bank has recently expressed more concern about the lack of home building.
"The Reserve Bank will consider another rate cut at the June meeting, but a raft of other influences will determine whether they act at that time or hold off a little longer," James.
There is a wealth of data over the next two days, including monthly statistics for retail sales, building approvals and credit, as well as key quarterly construction and capital expenditure figures ahead of next week's March quarter national accounts.
Concerns over Europe have also escalated in the past month.
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