Biggest lift in Aussie home prices in 32 years

Record home prices in 61 Aussie regions
Home prices; Manufacturing activity

Home prices: The CoreLogic national home value index surged 2.8 per cent in March – the most since October 1988 – to fresh record highs. Capital city home prices also rose by 2.8 per cent – the biggest lift since October 1988. And regional home prices also gained 2.5 per cent – the most since January 1989.

Record home prices: Home prices hit record highs in 61 of the 88 SA4 regions across Australia in March. And prices rose in 85 of the 88 SA4 regions in the month, led by gains of 5.4 per cent in Sydney’s Northern Beaches, Sydney – Ryde (up 5.1 per cent) and North Sydney & Hornsby (up 4.7 per cent).

Manufacturing sector: The AiGroup Performance of Manufacturing index rose by 1.1 points to a 3-year high of 59.9 points in March. But the ‘final’ IHS Markit Manufacturing Purchasing Managers’ index eased from 56.9 points to 56.8 points in March. Readings above 50 points 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?

• Australia is in the midst of yet another housing boom with a synchronised upswing in property prices across capital cities and regional areas. National home prices surged 2.8 per cent in March – the most since October 1988 – to fresh record highs. Capital city home prices also rose by 2.8 per cent – the biggest lift since October 1988. And regional home prices also gained 2.5 per cent – the most since January 1989.

• Monthly home price gains across capital cities were extraordinary with the records tumbling in March: Sydney (+3.7 per cent – the most since August 1988); Melbourne (+2.4 per cent – the most since October 2009); Brisbane (+2.4 per cent – the most since October 2002); Adelaide (+1.5 per cent – the most since December 2007); Perth (+1.8 per cent – the most since September 2006); Hobart (+3.3 per cent – the most since October 2003); Darwin (+2.3 per cent – the most since April 2009); and Canberra (+2.8 per cent – the most since October 2002).

• Regional home prices climbed by 2.5 per cent in March – the biggest lift since January 1989. Regional home prices surged 11.4 per cent in the year to March – the strongest annual growth rate since July 2004. CoreLogic data also shows that median home prices are at record highs in 61 of the 88 SA4 regions with just Western Australia – Outback, North (down 0.1 per cent), Darling Downs – Maranoa, Queensland (down 0.7 per cent) and South Australia – Outback (down 0.8 per cent) posting price declines in March.

What do the figures show?

Home prices – March

• The CoreLogic Home Value Index of national home prices rose by 2.8 per cent in March to be 6.2 per cent higher over the year.

• In capital cities, prices also rose by 2.8 per cent to be up 4.8 per cent over the year. House prices climbed 3.1 per cent and apartment prices rose by 1.9 per cent. House prices were up 6.0 per cent on a year ago and prices of apartments increased by 1.1 per cent.

• In regional areas, home prices jumped 2.5 per cent with house prices also up 2.5 per cent and apartment prices up by 2.1 per cent. Regional home prices were up 11.4 per cent on the year with houses lifting 11.7 per cent and apartments up 9.8 per cent.

• The average Australian capital city house price (median price) in March was $747,639 and the average unit price was $592,154.

• Home prices were higher in all eight capital cities in March: Sydney (+3.7 per cent); Melbourne (+2.4 per cent); Brisbane (+2.4 per cent); Adelaide (+1.5 per cent); Perth (+1.8 per cent); Hobart (+3.3 per cent); Darwin (+2.3 per cent); Canberra (+2.8 per cent).

• Home prices were higher than a year ago in all eight capital cities in March: Sydney (+5.4 per cent); Melbourne (+0.7 per cent); Brisbane (+6.8 per cent); Adelaide (+8.6 per cent); Perth (+6.0 per cent); Hobart (+12.5 per cent); Darwin (+14.2 per cent); Canberra (+12.1 per cent).

• Total returns on national dwellings rose by 9.7 per cent in the year to March with houses up 10.9 per cent and units up by 6.3 per cent on a year earlier. In contrast, the S&P/ASX All Ordinaries Accumulation Index rose by 41.1 per cent over the year to March.

Manufacturing Purchasing Managers’ indexes – March

• The AiGroup Performance of Manufacturing index rose by 1.1 points to a 3-year high of 59.9 points in March. But the ‘final’ IHS Markit Manufacturing Purchasing Managers’ index eased from 56.9 points to 56.8 points in March. Readings above 50 points indicate an expansion in activity.

• AiGroup reported: “The new orders index remained elevated in March, but delivery delays of raw materials are causing significant production delays in supplying finished products across many sectors. Supply chain difficulties including delivery delays, high freight pricing and higher prices for various raw materials and imported components continue to hamper manufacturers. Some respondents noted more caution among customers again, resulting in a lack of enquiries.”

• IHS Markit noted: “The PMI slipped slightly again in March but was still strong enough to round off the best quarter for manufacturing since the survey began almost five years ago. Given the headwinds of supply shortages, shipping delays, rising prices and ongoing COVID-19 restrictions in many markets, the strong performance is even more impressive.”

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?

• The property market is booming, fuelled by record low borrowing costs, HomeBuilder stimulus and a low supply of homes listed for sale amid surging demand. Home lending and building approvals are broadly around record high levels.

• While investor and interest-only home lending is lower than the peaks of the previous cycle, high loan-to-value ratio (LVR), high debt-to-income lending and broker-originated lending are increasing. In this environment, bank regulator Australian Prudential Regulation Authority (APRA) has signalled – along with Reserve Bank Governor Philip Lowe – that its keeping a close eye on developments in the property market. APRA Chairman Wayne Byres said earlier this week the regulator is “giving careful thought to which tools might work” to rein in excessive risk taking in the housing market. So some macroprudential policy tightening is becoming increasingly likely to cool the housing market later this year or beyond.

• Australia’s manufacturing sector is in good shape. In fact, the AiGroup’s activity index hit 3-year highs of 59.9 points in March. Capacity utilisation was at the second highest level on record at 82.6 per cent in March with the employment index hitting a record-high 66 points. And wages lifted 5.6 points to 63.8 points. But surveyed factory business owners reported challenging external conditions, including supply chain disruptions and rising import prices.

Published by Ryan Felsman, Senior Economist, CommSec