PHOTO: New home sales have plunged. FILE

Australia’s property market has been so savaged by multiple back-to-back interest rate rises that new home sales have dropped by an eye-watering 42 per cent.

In fact, one out of five people are ditching their contract as costs skyrocket.

That’s according to the latest report from the Housing Industry Association (HIA), released on Wednesday, which found that sales of newly constructed homes nationally fell by 4.6 per cent in December.

first-home owner grants

Inside the collapse of AUSTRALIAN building giants

As a result, the total sales figure for new properties in the last quarter of 2022 was 42 per cent lower than the same period the year before.

HIA’s chief economist, Tim Reardon, warned that less people were entering into home building contracts as costs have became out of reach.

“The rise in the cash rate has also seen many recent buyers of new homes unable to finance their new project,” he said.

There would be a “slow down” in building activity from the second half of this year onwards, according to Mr Reardon.

A whopping one in five recent new home buyers — or 20.3 per cent — reneged on their construction contracts in December, the HIA found.

New home sales have plunged. Picture: istock

New home sales have plunged. Picture: istock

The drop in home sales was most profound in NSW, recording a 66.7 per cent decline for the three months to December 2022.

That was followed by Queensland (-49.9 per cent), Victoria (-36.4 per cent), and Western Australia (-30.9 per cent).

South Australia saw the only increase, up by 13.9 per cent.

Home building projects have surged in the past few years, with the federal government using grants for residential construction works as a way to prop up the economy during the Covid-19 pandemic.

However, as inflation and the cost of living crisis set in around Australia, builders struggled as prices of key materials had risen and many had taken on too many projects that were no longer profitable, causing them to go bust.

Last year, several major Australian construction companies collapsed, including, Gold Coast-based Condev and industry giant Probuild, Privium, Pivotal Homes and Oracle Homes, as well as dozens of smaller outlets.

The cost of construction projects has since gone up for new contracts.

It’s not just new homes that are being impacted; Australians interested in buying established have also become spooked with interest rate rises, inflationary pressures and increased house contract prices.

Australia’s new and established homes have experienced a big drop in interest. Picture: NCA Newswire / Gaye Gerard

Australia’s new and established homes have experienced a big drop in interest. Picture: NCA Newswire / Gaye Gerard

As it stands, average national home prices are down by eight per cent from their high and fell 5.3 per cent in 2022.

Shane Oliver, chief economist at AMP, has predicted that property prices will bottom out in September this year.

Come September, national house prices will have fallen 20 per cent below their peak April 2022, he warned.

And not only that, it’s likely that price plunges will “re-accelerate” in the lead up to the September quarter as cash-strapped mortgage holders take to “distressed selling” on the housing market.