Record home prices in 18 Aussie regions
Mixed messages in manufacturing
Home prices; Manufacturing activity
Home prices: The CoreLogic Home Value Index of national home prices fell by just 0.1 per cent in September. Prices were up 4.8 per cent over the year. Prices rose in six of the eight capital cities in September.
Record home prices: Home prices hit record highs in 18 of the 88, SA4 regions across Australia.
Manufacturing sector: The AiGroup Performance of Manufacturing Index fell from 49.3 to 46.7 in September. And the ‘final’ IHS Markit Manufacturing Purchasing Managers’ Index rose from 53.6 to 55.4 in September. Readings above 50 indicate expansion in activity.
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?
• This is a most remarkable recession. Home prices are up almost 5 per cent over the year and are higher over the 12-month period in all capital cities bar Perth. But even in Perth, home prices lifted in the month. With lockdown restrictions easing in Victoria, there is also the prospect of firmer housing demand returning to that state in coming months.
• Certainly home prices are being supported by super-low interest rates. And the job market continues to defy the gloomsters. But challenges lie ahead. An extended closure of foreign borders will continue to crimp demand for homes.
• One feature of the COVID-19 economic times is an increased array of timely economic data. But sometimes the extra data can be confusing, such as the purchasing manager surveys. The AiGroup index fell in the latest month while the IHS Markit index rose. Overall, most indicators of the economy remain encouraging, showing that economic recovery is well underway.
What do the reports and figures show?
Home prices – September
• The CoreLogic Home Value Index of national home prices fell by 0.1 per cent in September. But home prices were still 4.8 per cent higher over the year.
• In capital cities, prices fell by 0.2 per cent, but prices were still up 4.9 per cent over the year. House prices also fell by 0.2 per cent in September and apartment prices eased by 0.4 per cent. House prices were still up 5.2 per cent on a year ago and prices of apartments increased by 4.0 per cent.
• In regional areas, home prices rose 0.4 per cent in September with house prices up by 0.5 per cent, and apartment prices rose by 0.3 per cent. Regional home prices were up 4 per cent on the year to August.
• The average Australian capital city house price (median price) in September was $672,873 and the average unit price was $564,648.
• Home prices were higher in six of the eight capital cities in September: Sydney (down 0.3 per cent); Melbourne (down 0.9 per cent); Brisbane (up 0.5 per cent); Adelaide (up 0.8 per cent); Perth (up 0.2 per cent); Hobart (up 0.4 per cent); Darwin (up 1.6 per cent); Canberra (up 0.4 per cent).
• Home prices were higher than a year ago in seven of the eight capital cities in September: Sydney (up 7.7 per cent); Melbourne (up 3.1 per cent); Brisbane (up 3.8 per cent); Adelaide (up 3.6 per cent); Perth (down 1.0 per cent); Hobart (up 6.4 per cent); Darwin (up 1.9 per cent); Canberra (up 6.3 per cent).
• Total returns on national dwellings rose by 8.5 per cent in the year to September with houses up 8.5 per cent and units up by 8.2 per cent on a year earlier. In contrast, the S&P/ASX All Ordinaries Accumulation Index fell by 8.8 per cent over the year to September.
Manufacturing Purchasing Managers’ indexes – September
• The AiGroup’s Performance of Manufacturing Index fell from 49.3 to 46.7 in September. And the IHS Markit Manufacturing Purchasing Managers’ Index rose from 53.6 to 55.4 in September. Readings above 50 indicate expansion in activity.
• IHS Markit reported: “The recovery in the Australian manufacturing sector gathered pace at the end of the third quarter, with the sector recording solid increases in both production and sales. The survey also showed export orders returning to growth in September. Firms added more workers for the first time in ten months amid a rise in capacity pressure. A sustained improvement in manufacturing conditions also boosted confidence, which rose to the highest since February 2019. Supply chains consequently came under greater pressure and inflationary pressures intensified.”
• AiGroup reported: “Manufacturers related to food & beverages (including printing & packaging for groceries), medical & pharmaceutical products, and some parts of freight transport, reported a robust recovery in conditions while other sectors reported lower demand due to the COVID-19 recession.
• There was significant divergence between the larger manufacturing states in August. Victoria’s PMI® fell by 9.3 points and back into contraction at 44.0 points. In contrast, the PMI® in NSW and South Australia continued to indicate recovery in August, while the PMI® in Queensland improved but continued to indicate a period of contraction.”
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?
• Like most things, home prices are a function of supply and demand. While stock levels are around 25 per cent below the five-year average, demand has also eased in line with softer job markets. Both supply and demand are tipped to rise over coming months with modest single digit annual growth rates of national prices seen as likely.
• Interest rates are expected to remain at super-low levels for the next three years. So the job market, changes in listing numbers and external and internal migration will be the key influences on home sales, home building and home prices.
Published by Craig James, Chief Economist, CommSec