Biggest lift in home prices in 32 years

Home prices; Purchasing managers’ indexes

What happened? The CoreLogic Home Value Index of national home prices rose by 1.5 per cent in August to be 18.4 per cent higher over the year – the strongest annual growth rate in 32 years. Home prices hit record highs in 69 of the 78 available SA4 regions across Australia in August. And prices rose in 74 SA4 regions in the month.

Implications: Unprecedented policy stimulus, rock-bottom interest rates and the eventual economic recovery are supportive of continued asset price appreciation, despite near-term virus lockdown uncertainty. Over the past 12 months, investor returns for both Aussie shares and residential property have been exceptional. In fact, total returns on national dwellings rose by 22.1 per cent in the year to August. In contrast, the S&P/ASX All Ordinaries Accumulation Index rose by 29.0 per cent over the year.

Other data: The AiGroup Performance of Manufacturing index fell from 60.8 in July to a 10-month low of 51.6 in August. The ‘final’ IHS Markit Manufacturing Purchasing Managers’ index eased from 56.9 in July to 52.0 in August. Readings above 50 points indicate an expansion in activity.

Home price data is important for retailers, especially those focussed on consumer durable goods. Purchasing manager surveys are important in assessing the outlook for interest rates and spending.

What does it mean?

• Lockdowns, affordability constraints and the expiry of the HomeBuilder scheme again slowed the pace of national home price gains in August. Home values, as measured by CoreLogic, rose by 1.5 per cent in the month – the slowest lift in seven months. That said, capital city home prices remained resilient despite the ongoing Delta health crisis with the strongest gains in Hobart (up 2.3 per cent), Canberra (up 2.2 per cent) and Brisbane (up 2.0 per cent). And regional Australia again outperformed, with home prices up 1.6 per cent in August.

• Of note, CoreLogic recently announced that it was investigating a divergence in Perth’s hedonic home value index from other housing market measures, and this could lead to an upward revision to the historical rate of growth in housing values across Western Australia. Western Australia was temporarily excluded from the August data.

• Despite recent pandemic disruptions, the CoreLogic national home value index grew by a massive 18.4 per cent over the year to August – the strongest annual pace in 32 years. Annual home price growth in capital cities (up 17.5 per cent) is the strongest in 19½ years with regional home prices (up 21.6 per cent) growing at the strongest annual pace in 17 years. Of course, a preference for detached houses (up 20.8 per cent) during the pandemic has driven overall gains over the period.

• Home prices hit record highs in 69 of the available 78 SA4 regions across Australia in August. Prices rose in 74 of the SA4 regions in the month. “Covid-free” West and North-West Tasmania (up 3.5 per cent), the NSW Riverina (up 2.7 per cent) and South-East Tasmania (up 2.7 per cent) were the strongest performing regions in Australia. But prices fell by the most in the Queensland Outback (down 1.1 per cent) with Townsville, Queensland down 0.3 per cent.

• CoreLogic noted that housing activity has been negatively impacted due to the Delta outbreak and ensuing government restrictions. In fact, the number of new listings through August was 5.8 per cent below the 5-year average and total active listings were 29.4 per cent below average. Also, the number of home sales fell by 9.0 per cent over the three months to August.

• And figures released yesterday by SQM Research reveal national residential property listings fell by 9.6 per cent in August to 215,911, representing the lowest count of listings recorded by SQM Research since it began its series in January 2010. With vendors cautious due to lockdown uncertainties, the traditional Spring selling season has got off to a slow start with data from SQM Research showing that upcoming auction listings in Sydney are down 29 per cent for September compared with a year ago and 10.5 per cent lower than pre-pandemic levels in September 2019. And Melbourne listings have dropped 36.2 per cent over the two-year period.

• Prolonged lockdowns in Sydney and Melbourne and virus flare-ups elsewhere are likely to slow the rapid pace of home price growth in the remaining months of 2021. But Commonwealth Bank (CBA) Group economists still expect national home prices to lift at least 20.0 per cent in 2021 with house prices 24.0 per cent higher and apartments up 9.0 per cent over the year. But national home price growth is expected to slow to around 7 per cent in 2022, led by gains of 10.0 per cent in Brisbane and 9.0 per cent in Canberra.

What do you need to know?

Home prices – August

• The CoreLogic Home Value Index of national home prices rose by 1.5 per cent in August to be 18.4 per cent higher over the year – the strongest annual growth rate in 32 years.

• In capital cities, prices also lifted by 1.5 per cent to be up 17.5 per cent over the year – the strongest annual pace in 19½ years. House prices climbed 1.6 per cent and apartment prices rose by 1.1 per cent. House prices were up 20.5 per cent on a year ago – the fastest annual rate in 32 years – with apartments up by 8.9 per cent.

• In regional areas, home prices rose by 1.6 per cent to be up 21.6 per cent on the year – the strongest annual growth rate in 17 years. House prices also lifted 1.6 per cent to be up 22.0 per cent on the year. Apartment prices rose 1.7 per cent in the month to be up 19.6 per cent on the year.

• Home prices were higher in six capital cities in August, but prices edged lower in Darwin and data was unavailable for Perth*: Sydney (+1.8 per cent); Melbourne (+1.2 per cent); Brisbane (+2.0 per cent); Adelaide (+1.9 per cent); Hobart (+2.3 per cent); Darwin (-0.1 per cent); Canberra (+2.2 per cent).

• Home prices were higher than a year ago in all seven* capital cities in August: Sydney (+20.9 per cent); Melbourne (+13.1 per cent); Brisbane (+18.3 per cent); Adelaide (+17.9 per cent); Hobart (+24.5 per cent); Darwin (+22.0 per cent); Canberra (+22.5 per cent).

• Total returns on national dwellings rose by 22.1 per cent in the year to August. In contrast, the S&P/ASX All Ordinaries Accumulation Index rose by 29.0 per cent over the year to August.

• *Please note that CoreLogic has “withheld the Perth and Regional Western Australian index results pending the resolution of a divergence from other housing market measurements in Western Australia.”

Manufacturing Purchasing Managers’ indexes – August

• The AiGroup Performance of Manufacturing index fell from 60.8 in July to a 10-month low of 51.6 in August.

• The ‘final’ IHS Markit Manufacturing Purchasing Managers’ index eased from 56.9 in July to 52.0 in August. Readings above 50 points indicate an expansion in activity.

• According to the AiGroup: “activity and sales stalled in NSW and Victoria in August due to lockdowns. Many manufacturers in these states reported operating at reduced capacity or closing completely.” That said, AiGroup also highlighted that, “new orders and inventories remain elevated across all sectors, which augurs well for a resumption in activity when current lockdowns end.”

Published by Ryan Felsman, Senior Economist, CommSec