The CoreLogic Home Value Index of national home prices fell by 1.3 per cent in July, the third straight monthly decline. Home prices fell in five of eight capital cities in July.

Across the regions, 29 out of the 88 SA4 regions recorded flat or higher home prices in July, down from 49 regions in May. All but eight regions posted flat or higher home prices over the year.

The final S&P Global Australia Manufacturing purchasing manager’s index eased from 56.2 in May to 55.7 in July. Readings over 50 denote an expansion in activity. Business expectations eased to a 27-month low. And the AiGroup manufacturing index dropped by 1.5 points to 52.5 in July, indicating a weaker rate of expansion.

What does it all mean?

More parts of the national housing market are responding to higher interest rates. Further slowing of home prices, as well as outright monthly and annual declines in prices, can be expected as interest rates rise further. But a strong job market will provide fundamental support for housing demand and thus home prices.

Declines in home prices have potential to affect consumer confidence and spending. And another leg to the equation is the ‘negative wealth effect’. Falling home prices translate to lower wealth and therefore can lead to lower spending, especially big ticket items like whitegoods and vehicles.

In July, Sydney home prices fell by 2.2 per cent, while Melbourne home prices dropped 1.5 per cent, the main drivers of the weakening in CoreLogic’s combined capital cities index. CoreLogic reported that in Sydney, “we are seeing the sharpest value falls in almost 40 years.” But the recent falls in home prices need to be put in perspective with the stellar gains recorded over 2021.

After rising by 21 per cent in calendar 2021, Commonwealth Bank (CBA) Group economists expect national home prices to fall by 6 per cent over calendar 2022 and fall by a further 8 per cent in 2023. In terms of official interest rates, the CBA Group economists expect the cash rate to rise by 50 basis points (bp) tomorrow and lift 50bp in September and 25bp in November taking the cash rate to 2.6 per cent by year-end.

Manufacturing purchasing manager’s index: Manufacturing continues to expand but operators are losing
confidence. The 12-month forecast for output remained optimistic but the degree of confidence slipped to a 27- month low. “Concerns surrounding inflationary pressures and global issues were frequently cited.”

Clearly the Reserve Bank will be watching a broad gamut of indicators as it goes about the process of lifting rates. The aim is to get the right cadence of rate hikes in terms of the size and speed of rate movements.

What do you need to know?
Home prices – July 2022

The CoreLogic Home Value Index of national home prices fell by 1.3 per cent in July, the third consecutive monthly decline. Prices were still up by 8.0 per cent on the year.

National house prices fell 1.4 per cent in the month but were up 9.0 per cent for the year. Apartment prices fell by 0.9 per cent in July but were still up 4.6 per cent for the year.

Across all capital cities, home prices fell by 1.4 per cent but were still up 5.4 per cent over the year.

Home prices were up in five out of eight capital cities in July: Sydney (-2.2 per cent); Melbourne (-1.5 per cent); Brisbane (-0.8 per cent); Adelaide (+0.4 per cent); Perth (+0.2 per cent); Hobart (-1.5 per cent); Darwin (+0.5 per cent); and Canberra (-1.1 per cent).

Home prices were higher than a year ago in all eight capital cities in July: Sydney (+1.6 per cent); Melbourne (+0.3 per cent); Brisbane (+22.1 per cent); Adelaide (+24.1 per cent); Perth (+5.5 per cent); Hobart (+10.1 per cent); Darwin (+5.3 per cent); and Canberra (+12.1 per cent).

Regional home prices fell by 0.8 per cent in July, but were still up 17 per cent on the year. House prices fell 0.9 per cent but were 17.1 per cent on the year. Apartment prices fell by 0.3 per cent in the month but were still up 16.1 per cent on the year.

Total returns on national dwellings rose by 10.8 per cent in the year to July, outperforming the S&P/ASX All Ordinaries Accumulation Index, which fell by 2.6 per cent. Manufacturing Purchasing Managers’ index (PMI) – July 2022

The final S&P Global Australia Manufacturing PMI fell from 56.2 to 55.7 in July. Readings over 50 denote an expansion in activity.

According to authors of the S&P Global Manufacturing PMI, “Expansion across Australia’s manufacturing sector continued into July, according to the latest S&P Global PMI® data. A further acceleration in new orders growth was recorded while manufacturing output expanded but at a rate unchanged from June. Strong underlying demand conditions supported a faster rate of job creation but some firms continued to report difficulties in hiring new staff. Subsequently, staff shortages constrained output levels and contributed to the accumulation of backlogged orders and the renewed contraction in stocks of finished goods.

“Meanwhile, inflationary pressures remain severe with selling price inflation reaching a near survey record. Input costs have been listed as the primary driver behind charge inflation as firms continue to share part of the cost burden with clients. Should orders continue to outweigh output, as indicated by July’s data, we may see further inflationary pressures in the months ahead.”

Originally published by Craig James, Chief Economist, CommSec