Melbourne luxury home prices retreatHome prices; Manufacturing
Home prices: The CoreLogic Home Value Index of capital city home prices eased by 0.1 per cent in November to stand 5.5 per cent higher over the year. The national home price index was flat in November to be up 5.2 per cent over the year. It was the smallest annual change in national prices in 12 months.
Dwelling prices rose in five of the eight capital cities in November. Canberra prices rose the most, up by 0.9 per cent, while Sydney prices fell most, down by 0.7 per cent. Melbourne prices rose by 0.5 per cent. Hobart leads annual gains in home prices, up 11.5 per cent in the year to November.
Luxury home prices in Melbourne slowed with annual growth of 8.1 per cent in November – the lowest level in 11 months.
Manufacturing: The CBA/Markit Manufacturing index rose from 55.5 to 56.3 in November. The AIG manufacturing index rose 6.2 points to 57.3 in November. Readings above 50.0 indicates that the sector is expanding. Home price data is important for retailers, especially those focussed on consumer durables. The manufacturing data provides guidance for companies in the Industrials sector.
What does it all mean?
Aussie home prices continued to ease in November. Annual growth rates of home prices have peaked. Sydney prices have now eased for three consecutive months, down by 1.3 per cent, but up by 5.0 per cent annually – the slowest growth in 12 months. Rising housing stock, softening auction clearance rates (five consecutive weeks of 60 per cent or less) and tighter investor lending restrictions have taken the steam out the Emerald City’s property market.
Elsewhere, Melbourne prices are up 10.1 per cent on a year ago – the slowest pace in nine months. However, strong population and employment growth together with low interest rates continues to keep prices elevated. One development that we’ve observed in today’s data is that the luxury end of the Melbourne property market has slowed with annual price growth at the lowest level in 11 months at 8.1 per cent.
Hobart continues to be an outperformer with home prices rising by 3.3 per cent over the three months to November with annual growth of 11.5 per cent. Hobart has experienced 22 consecutive months of price appreciation as more people migrate to the attractive housing affordability of the Apple Isle and its pristine environment.
There is some good news for the more beleaguered markets. Perth home prices appear to have ‘bottomed’ as the drag from the mining downturn recedes. Prices have lifted for three straight months, the first time that’s occurred in 3½ years. Settled sales are selling faster according to CoreLogic. Properties were on the market for 59 days compared with 68 days a year ago.
The Reserve Bank will be comforted by the latest data on home prices. Our base case is for a ‘soft landing’ with anaemic to moderate growth expected nationally in 2018. There are no indications as yet that the housing market is headed for a ‘hard landing’ although clearly trends will bear watching over the next year or so – especially in Sydney, Melbourne and the Brisbane apartment markets.
Total returns on sharemarket investments continue to exceed returns on homes.
The two gauges of activity in the Aussie manufacturing sector indicate that the sector is expanding, and at a sustainable pace.
What do the figures show?
The CoreLogic Home Value Index of capital city home prices eased by 0.1 per cent in November to stand 5.5 per cent higher over the year.
The national home price index was flat in November to be up 5.2 per cent over the year. It was the smallest annual change in national prices in 12 months.
In capital cities, house prices fell by 0.3 per cent in November while apartment prices rose by 0.3 per cent. House prices were up 5.3 per cent on a year ago and apartments were up by 5.9 per cent.
The average Australian capital city house price (median price) was $692,340 and the average unit price was$580,418.
Dwelling prices rose in five of the eight capital cities in November: Canberra (up 0.9 per cent); Hobart (up 0.6 per cent); Melbourne (up 0.5 per cent); Perth (up 0.2 per cent) and Brisbane (up 0.1 per cent). Prices were flat in Adelaide. Home prices fell by 0.7 per cent in Sydney and decreased by 0.4 per cent in Darwin.
Home prices were higher than a year ago in six of the eight capital cities. Prices rose most in Hobart (up11.5 per cent); followed by Melbourne (up 10.1 per cent); Canberra (up 5.8 per cent); Sydney (up 5.0 per cent); Adelaide (up 3.4 per cent) and Brisbane (up 2.4 per cent). Prices fell in Darwin (down 5.5 per cent) and Perth (down by 2.6 per cent).
Total returns on capital city dwellings rose by 9.2 per cent in the year to November with houses up 9.0 per cent on a year earlier and units up 10.0 per cent.
Manufacturing Purchasing Managers’ Indexes
The CBA/Markit Manufacturing index rose from 55.5 to 56.3 in November. Readings above 50.0 indicate that the sector is expanding.
CBA/Markit notes: “After some softness in the September quarter we have seen a decent lift in both the November and October readings. The continued improvement in the global economy coupled with a slightly weaker AUD is providing support to the local manufacturing sector.”
Also: “Broad-based strength in the PMI components such as output, new orders and employment suggests that Australia’s manufacturing sector looks well placed heading into the new year. The sharp lift in input prices points to some downstream inflationary pressures. But the favourable backdrop of rising global demand means that local manufacturers have been able to lift output prices accordingly.”
The Australian Industry Group (AIG) manufacturing index rose 6.2 points to 57.3 in November. The AIG survey suggested broad-based acceleration in momentum across most of the key components, particularly in areas related to non-mining capex. Production (up 8.2 points) and stocks (up 11.8 points) rose. Measures of input prices (up 10.1 points) also rose sharply, with average wages (up 5.1 points) expanding at the fastest rate since mid-2012 at 64.1.
What is the importance of the economic data?
The CoreLogic Hedonic Australian Home Value Index is based on Australia’s biggest property database. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.
The Australian Industry Group compile the Performance of Manufacturing Index and Performance of Services index each month. CBA and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia. The surveys areuseful not just in showing how key sectors are performing but also in providing some sense about where they are headed. The key ‘forward looking’ components are orders and employment.
What are the implications for interest rates and investors?
Home prices are growing more slowly in many markets, but back to more sustainable levels. Housing lending and credit growth remains a focus of the Reserve Bank and the bank regulator, the Australian Prudential Regulation Authority (APRA). Recent investor lending restrictions has cooled the Sydney housing market in particular. This will no doubt please policy makers and home affordability will start to improve again in major cities, further encouraging first home buyers who are returning to the market.
In the low inflation/low interest rate environment, investors need to ensure that they are getting the best possible returns. Home prices are rising, but at a slower rate. At the same time, returns on equities (listed shares) are recording the best annual gains in six months. Returns on shares are in front of property and certainly strong corporate profits and a good flow of dividends has helped.
CommSec expects interest rate stability through to at least the end of 2018.
Originally published by Ryan Felsman, Senior Economist, CommSec
Melbourne luxury home prices retreatHome prices; Manufacturing