Record home prices in 70 Aussie regions

Home prices; Purchasing managers’ indexes

What happened? The CoreLogic national home value index rose by 1.6 per cent in July to be up 16.1 per cent on the year – the strongest annual growth rate in 17 years. Home prices hit record highs in 70 of the 88 SA4 regions across Australia in July. And prices rose in 82 of the 88 SA4 regions in the month.

Implications: The Australian real estate reporting season kicks-off this week. Covid-19 lockdowns increase the likelihood that property owners will need to provide rental relief to tenants. Investors could respond positively to Real Estate Investment Trusts (REITs) who are able to generate solid cash flows and provide guidance at results.

Other data: The AiGroup Performance of Manufacturing index fell from a record high 63.2 in June to 60.8 in July. The ‘final’ IHS Markit Manufacturing Purchasing Managers’ index eased from 58.6 in June to 56.9 in July. 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?

• Covid-19 lockdowns, affordability constraints and the expiry of the HomeBuilder scheme slowed Australia’s housing market momentum in July. National home prices, as measured by CoreLogic, rose by 1.6 per cent in the month – the slowest pace in six months. That said, home prices remained resilient in the face of the escalating Covid-19 delta crisis with the strongest gains in Canberra (up 2.6 per cent), Sydney (up 2.0 per cent) and Brisbane (up 2.0 per cent).

• Hard lockdowns continued to weigh on Melbourne property prices, which rose 1.3 per cent in July, lagging the other big cities. Preliminary auction results last weekend signalled a pickup in activity, however, after the city emerged from its latest shutdown. Early results from CoreLogic showed that 77.1 per cent of Melbourne auction listings sold on the day or shortly after, up from 71.9 per cent in the previous week.

• Perth home prices continued to stall in July, up just 0.3 per cent. The Perth property market continues to confound observers, given the relative strength of the Western Australian economy. But auctions are rare in the city with just 16 homes put ‘under the hammer’ last weekend according to CoreLogic. Also, buyers and sellers remain cautious with Perth home prices still yet to rise above the pre-Covid peak.

• Despite lockdowns in several capital cities, detached house prices grew by a massive 17.9 per cent in July on a year ago, the strongest annual pace in 17½ years. It was a similar story in regional Australia – benefitting from low Covid-19 infection rates, lifestyle opportunities and flexible working arrangements – with house prices soaring 20.1 per cent on the year – also the fastest annual pace since early 2004. And home prices hit record highs in 70 of the 88 SA4 regions across Australia in July. Prices rose in 82 of the 88 SA4 regions in the month. South-East Tasmania (up 3.0 per cent), the NSW Mid-North Coast (up 3.0 per cent) and the NSW Central West (up 2.9 per cent) were the strongest performing regions in Australia. But prices fell by the most in Western Australia – Outback South (down 1.8 per cent) and Mandurah in Western Australia (down 0.6 per cent).

• Prolonged lockdowns in Sydney and Melbourne and virus flare-ups elsewhere are likely to slow the rapid pace of home price growth in the second half of 2021. Sydney’s traditional spring selling season is likely to be pushed back into the summer months with fewer listings, auctions and sales volumes in the near-term. That said, the eventual re-opening of the NSW economy, supported by pent-up buyer demand and record low mortgage rates could trigger a sharp rebound in housing market activity. Already, CoreLogic reported a total of 685 Sydney homes (80.8 per cent) were taken to auction last weekend, up by 17 per cent from a week earlier. Only 14 per cent of homes were withdrawn or postponed, compared to 21 per cent in the previous week.

• Commonwealth Bank (CBA) Group economists expect national home prices to lift around 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 – July

• The CoreLogic Home Value Index of national home prices rose by 1.6 per cent in July to be 16.1 per cent higher over the year – the strongest annual growth rate in 17 years.

• In capital cities, prices lifted by 1.6 per cent to be up 15.1 per cent over the year – the strongest annual pace in 17 years. House prices climbed 1.8 per cent and apartment prices rose by 1.1 per cent. House prices were up 17.9 per cent on a year ago – the fastest annual rate in 17½ years – with apartments up by 7.3 per cent.

• In regional areas, home prices rose by 1.7 per cent to be up 19.6 per cent on the year – the strongest annual growth rate in 17 years. House prices lifted 1.6 per cent to be up 20.1 per cent on the year. Apartment prices rose 1.8 per cent in the month to be up 17.1 per cent on the year.

• Home prices were higher in all eight capital cities in July: Sydney (+2.0 per cent); Melbourne (+1.3 per cent); Brisbane (+2.0 per cent); Adelaide (+1.7 per cent); Perth (+0.3 per cent); Hobart (+1.7 per cent); Darwin (+1.7 per cent); Canberra (+2.6 per cent).

• Home prices were higher than a year ago in all eight capital cities in July: Sydney (+18.2 per cent); Melbourne (+10.4 per cent); Brisbane (+15.9 per cent); Adelaide (+15.7 per cent); Perth (+10.8 per cent); Hobart (+21.9 per cent); Darwin (+23.4 per cent); Canberra (+20.5 per cent).

• Total returns on national dwellings rose by 19.9 per cent in the year to July. In contrast, the S&P/ASX All Ordinaries Accumulation Index rose by 30.4 per cent over the year to July.

Manufacturing Purchasing Managers’ indexes – July

• The AiGroup Performance of Manufacturing index fell from a record high 63.2 in June to 60.8 in July. The ‘final’ IHS Markit Manufacturing Purchasing Managers’ index eased from 58.6 in June to 56.9 in July. Readings above 50 points indicate an expansion in activity.

• According to the AiGroup: “Production expanded in most states and territories but was lower in New South Wales due to lockdowns in Sydney and selected NSW regional areas. Manufacturers reported concerns about lockdowns, supply chain disruptions, input costs and difficulties finding suitable staff in July.”

Published by Ryan Felsman, Senior Economist, CommSec