Biggest lift in Aussie home prices in 17½ years

Record home prices in 53 Aussie regions
Home prices; Manufacturing activity

Home prices: The CoreLogic Home Value Index of national home prices rose by 2.1 per cent in February – the biggest increase since August 2003. Prices were up 4.0 per cent over the year. Capital city home prices lifted 2.0 per cent. Regional home prices were up 2.1 per cent in February – the biggest gain in 17 years. Prices were 9.4 per cent higher over the year – the strongest annual growth rate in 16½ years.

Record home prices: Home prices hit record highs in 53 of the 88 SA4 regions across Australia in February. And prices rose in 86 of the 88 SA4 regions in the month, led by gains of 4.0 per cent in Warrnambool & South West in Victoria and Sydney’s Northern Beaches (up 3.9 per cent).

Manufacturing sector: The AiGroup Performance of Manufacturing index rose by 3.5 points to 58.8 in February – the highest monthly result since March 2018. But the ‘final’ IHS Markit Manufacturing Purchasing Managers’ index eased from a 4½-year high of 57.2 in January to 56.9 in February. Readings above 50 indicate an expansion in activity.

Home price data is important for retailers, especially those focussed on consumer durable goods. Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. The manufacturing data provides guidance for companies in the Industrials sector.

What does it all mean?

• The records have continued to tumble for the Aussie property market in early 2021. National home prices surged 2.1 per cent in February – the most since August 2003. Regional home prices also gained 2.1 per cent – the most in 17 years. And capital city home prices rose by 2.0 per cent – the biggest lift since September 2003.

• Home prices are at record highs in Canberra, Adelaide, Brisbane and Hobart. Canberra home prices (up 1.9 per cent) rose the most in 13½ years; Perth home prices (up 1.55 per cent) lifted the most in 14 years; Brisbane home prices (up 1.5 per cent) gained the most in 13 years; and Hobart home prices (up 2.5 per cent) surged the most in 17 years. And it was the biggest lift in Sydney home prices (up 2.5 per cent) and Melbourne (up 2.1 per cent) since late 2019.

• But it’s regional Aussie housing markets – benefiting from lifestyle choices, remote working arrangements, internal migration, closed borders and better affordability – that are seeing massive price gains during the pandemic. Regional home prices climbed by 2.1 per cent in February – the biggest lift in 17 years. Regional home prices surged 9.4 per cent in the year to February – the strongest annual growth rate in 16½ years. CoreLogic data also shows that median home prices are at record highs in 53 of the 88 SA4 regions with just Townsville (down 0.6 per cent) and the NSW Riverina (down 0.3 per cent) posting price declines in February.

• Can home prices lift further from here? Absolutely. Preliminary CoreLogic capital city auction clearance rates hit 81.9 per cent last weekend with buyers keen to borrow to upgrade or buy another home.

• The smaller capital cities are leading home price gains with Sydney and Melbourne still lagging. In fact, dwelling prices in Sydney are still 1.1 per cent below the July 2017 peak and Melbourne home prices are 1.7 per cent below the March 2020 peak. And resources boom towns – Perth and Darwin – still have a lot of catching up to do. In fact, Perth home prices are still a huge 17.4 per cent below the June 2014 peak and Darwin prices are 23.4 per cent below the April 2014 peak.

• While slower population growth and rising supply of detached houses could slow price momentum, Commonwealth Group (CBA) economists forecast national home prices to lift by around 8.0 per cent in 2021.

What do the figures show?

Home prices – February 2021

• The CoreLogic Home Value Index of national home prices rose by 2.1 per cent in February to be 4.0 per cent higher over the year.

• In capital cities, prices rose by 2.0 per cent to be up 2.6 per cent over the year. House prices climbed 2.3 per cent and apartment prices rose by 1.1 per cent. House prices were up 3.6 per cent on a year ago, but prices of apartments decreased by 0.1 per cent.

• In regional areas, home prices jumped 2.1 per cent with house prices also up 2.1 per cent and apartment prices up by 1.9 per cent. Regional home prices were up 9.4 per cent on the year with houses lifting 9.7 per cent and apartments up 7.9 per cent.

• The average Australian capital city house price (median price) in February was $723,607 and the average unit price was $581,652.

• Home prices were higher in all eight capital cities in February: Sydney (+2.5 per cent); Melbourne (+2.1 per cent); Brisbane (+1.5 per cent); Adelaide (+0.8 per cent); Perth (+1.5 per cent); Hobart (+2.5 per cent); Darwin (+0.7 per cent); Canberra (+1.9 per cent).

• Home prices were higher than a year ago in seven of the eight capital cities in February: Sydney (+2.8 per cent); Melbourne (-1.3 per cent); Brisbane (+5.0 per cent); Adelaide (+7.3 per cent); Perth (+4.6 per cent); Hobart (+8.7 per cent); Darwin (+13.8 per cent); Canberra (+9.7 per cent).

• Total returns on national dwellings rose by 7.6 per cent in the year to February with houses up 8.5 per cent and units up by 5.0 per cent on a year earlier. In contrast, the S&P/ASX All Ordinaries Accumulation Index rose by 9.6 per cent over the year to February.

Manufacturing Purchasing Managers’ indexes – February 2021

• The AiGroup Performance of Manufacturing index rose by 3.5 points to 58.8 in February – the highest monthly result since March 2018. But the ‘final’ IHS Markit Manufacturing Purchasing Managers’ index eased from a 4½-year high of 57.2 in January to 56.9 in February. Readings above 50 indicate an expansion in activity.

• AiGroup reported: “Australian manufacturing continues to recover from the lows of Q2 and Q3 in 2020, with the sector now recording its strongest pace of expansion since March 2018. Manufacturers noted especially strong demand from customers in the agriculture and home building sectors. The building materials sector recorded its first expansion since August 2019, with respondents noting strong customer demand due to state and federal government government stimulus programs. Some respondents reported that the instant tax write-off for business assets helped to increase their orders, particularly for Australian-made machinery & equipment.”

• IHS Markit noted: “Australia’s manufacturing sector reported further solid gains in production and order books in February, adding to signs of a strong start to the year and setting the scene for the sector’s best quarter for three years. Businesses have also become more optimistic about the year ahead, with sentiment hitting a two-year high as hopes build of an impressive post-COVID recovery, with the release of pent-up demand.”

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 AiGroup and IHS Markit Purchasing Manager indexes (PMIs) for services and manufacturing are released each month. The Australian PMIs are the local equivalents of similar indexes released for other countries. The PMIs are amongst the timeliest economic indicators released in Australia. The PMIs are useful not just in showing how the sectors are performing but in providing some sense about where they are heading. The key ‘forward looking’ components are orders and employment.

What are the implications for investors?

• Australia’s property market is strong, driven by record-low borrowing costs, government stimulus, low housing inventories and an improving labour market backdrop. Of course, the lift in home prices is good for the household ‘wealth effect’ and consumer confidence – pivotal for continued retail spending. The lift in home building supports jobs in the construction sector with ‘brickies’ in short supply. But housing affordability is becoming an issue with Sydney the third least affordable and Melbourne the sixth least affordable housing markets according to recent reports from Bloomberg, Urban Reform Institute and Frontier Centre for Public Policy.

• That said, the Reserve Bank’s private sector credit or loans data released last Friday suggests that housing sector credit growth (up 3.6 per cent over the year to January 2021) remains subdued when compared with historic levels. CBA Group economists expect housing credit growth to remain low and do not expect macro‑prudential policies to be implemented in 2021. But the lift in household mortgage debt will unnerve policymakers.

• Australia’s factory sector is in good shape. According to the AiGroup, production rose to multi-decade highs in February. The AiGroup gauge hit 3-year highs with surveyed purchasing managers suggesting that government stimulus is driving up demand as the economic recovery gains traction.
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Published by Ryan Felsman, Senior Economist, CommSec