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New home sales climb higher

New home sales climbed off the mat in October, following a very weak period in mid-2012.

A 3.4 per cent increase in new home sales in October is a modest result, but at least it is a move in the right direction.

The HIA New Home Sales report, a survey of Australia's largest volume builders, showed a substantial 31.4 per cent increase in the sale of multi-units in October and this delivered the headline rise for the month.

Detached house sales fell by 2.0 per cent in October, a disappointing result which marked the fifth decline in six months.

Scratching below the surface, new home sales in October were a mixed bag. Within the weak headline result for detached houses there were modest increases for New South Wales, South Australia and Western Australia, albeit from very low bases.

Detached house sales in Victoria were a big drag on the aggregate result in October, slumping by 12.1 per cent. If you take that result out of the mix then detached house sales actually posted a rise of 2.4 per cent.

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 should cut interest rates next Tuesday.

Further action on rates next week would bolster the chances that we see a sustained recovery in new home building in 2013. Right now, the jury is still out on that.

In October 2012, the number of seasonally adjusted new detached house sales increased by 4.7 per cent in New South Wales, 3.2 per cent in South Australia and 3.7 per cent in Western Australia.