Second biggest lift in Sydney home prices in 32½ years

Darwin home prices grow at record annual pace
Home prices; Consumer confidence; Manufacturing activity

¾ What happened: The CoreLogic national home value index rose by 2.2 per cent in May to be up 10.6 per cent on the year – the strongest annual growth rate in almost 11 years. Home prices hit record highs in 66 of the 88 SA4 regions across Australia in May. And prices rose in 81 of the 88 SA4 regions in the month.

¾ Other data of note: The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.5 per cent to 111.4 (long-run average since 1990 is 112.6). The AiGroup Performance of Manufacturing index rose by 0.1 point in May to 61.8 points – the strongest level since March 2018. And the ‘final’ IHS Markit Manufacturing Purchasing Managers’ index rose from 59.7 points in April to a record 60.4 points in May. Readings above 50 points indicate an expansion in activity.

¾ Investor implications: Total returns on national dwellings rose by 14.3 per cent in the year to May with houses up 16.3 per cent and units up by 8.8 per cent on a year earlier. In contrast, the S&P/ASX All Ordinaries Accumulation Index rose by 30 per cent over the year to May.

Home price data is important for retailers, especially those focussed on consumer durable goods. The consumer confidence data has implications for retailers, and other consumer-focussed businesses. The manufacturing data provides guidance for companies in the Industrials sector.

What does it all mean?

• Aussie home prices continued to lift at a strong pace (+2.2 per cent) in May, posting the strongest annual gain in prices (+10.6 per cent) in almost 11 years (since July 2010). In regional areas, home prices rose by 2 per cent in May to be up 15.2 per cent on the year – the strongest annual growth rate in almost 17 years.

• Sydney home prices lifted 3 per cent in May – the second strongest monthly gain since October 1988 – surpassed only by the massive 3.7 per cent jump in March 2021. Sydney’s beachside suburbs dominated price gains in May with the SA4 regions of Sydney – Northern Beaches (+4.3 per cent), Sydney – Eastern Suburbs (+4 per cent) and Sydney – Sutherland (+3.8 per cent) leading the way.

• Home price gains were again broad-based with Hobart (+3.2 per cent) the strongest performing capital city in May. But over the year to May, Darwin home prices soared 20.3 per cent – the biggest annual gain ever recorded.

• Of course, the stampede to regional Australia continues during the pandemic with demand for lifestyle locations particularly strong. According to CoreLogic, 97 per cent of the 334 SA3 Aussie sub-regions recorded a lift in home values over the past three months. In terms of the SA4 regions, the NSW Riverina and Central Coast NSW (both +3.6 per cent), Illawarra NSW (+3.2 per cent) and Mornington Peninsula Victoria (+3 per cent) were the best performing regions in May. And over the year to May, home prices have surged by the most in Richmond – Tweed NSW (+24.3 per cent), Southern Highlands and Shoalhaven NSW (+22.7 per cent) and the Central Coast NSW (+21.5 per cent).

• Just seven SA4 regions posted home price declines in May, led lower by Western Australia – Outback South (-1.3 per cent), Western Australian – Wheat Belt (-0.7 per cent), South Australia – Outback (-0.4 per cent), Townsville Queensland and Cairns, Queensland (both -0.2 per cent).

• Leading indicators of home sales and listings indicate still-strong demand for detached houses due to the HomeBuilder scheme, state-based incentives and record-low borrowing costs. CoreLogic noted, “advertised supply remains well below average. This imbalance between demand and supply is continuing to create urgency amongst buyers, contributing to the upwards pressure on housing prices.”

• The Aussie housing market has strong momentum with investor activity starting to pick-up. While the lift in investor housing credit and home lending increases the risk that bank regulator APRA deploys macroprudential policy tools to contain financial stability risks, there are already some near-term headwinds for property buyers. Victoria’s latest virus lockdown could be extended, reducing housing activity in Melbourne, in particular. The surge in home prices is also making property increasingly unaffordable for first home buyers and prospective owner-occupiers could be constrained by increasing mortgage debt.

What do the figures show?

Home prices – May

• The CoreLogic Home Value Index of national home prices rose by 2.2 per cent in May to be 10.6 per cent higher over the year – the strongest annual growth rate in almost 11 years.

• In capital cities, prices lifted by 2.3 per cent to be up 9.4 per cent over the year. House prices climbed 2.6 per cent and apartment prices rose by 1.4 per cent. House prices were up 11.4 per cent on a year ago (the strongest growth rate in almost 4 years) and prices of apartments increased by 3.5 per cent.

• In regional areas, home prices rose by 2 per cent to be up 15.2 per cent on the year – the strongest annual growth rate in almost 17 years. House prices lifted 1.9 per cent to be up 15.7 per cent on the year. Apartment prices rose 2 per cent in the month to be up 12.6 per cent on the year.

• The average Australian capital city house price (median price) in May was $781,645 and the average unit price was $606,060.

• Home prices were higher in all eight capital cities in May: Sydney (+3 per cent); Melbourne (+1.8 per cent); Brisbane (+2 per cent); Adelaide (+1.9 per cent); Perth (+1.1 per cent); Hobart (+3.2 per cent); Darwin (+2.7 per cent); Canberra (+1.7 per cent).

• Home prices were higher than a year ago in all eight capital cities in May: Sydney (+11.2 per cent); Melbourne (+5 per cent); Brisbane (+10.6 per cent); Adelaide (+11.8 per cent); Perth (+8.5 per cent); Hobart (+16.5 per cent); Darwin (+20.3 per cent); Canberra (+15.6 per cent).

• Total returns on national dwellings rose by 14.3 per cent in the year to May with houses up 16.3 per cent and units up by 8.8 per cent on a year earlier. In contrast, the S&P/ASX All Ordinaries Accumulation Index rose by 30 per cent over the year to May.

Consumer sentiment – Week ended May 30

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.5 per cent to 111.4 (long-run average since 1990 is 112.6). All five major components of the index fell last week:

According to ANZ economists, “Confidence fell 3.8 per cent in Melbourne, but was actually down more sharply in Brisbane (-4.7 per cent) and Sydney (-4.5 per cent) last week.”

Manufacturing Purchasing Managers’ indexes – May

• The AiGroup Performance of Manufacturing index rose by 0.1 point in May to 61.8 points – the strongest level since March 2018.

• The ‘final’ IHS Markit Manufacturing Purchasing Managers’ index rose from 59.7 points in April to a record 60.4 points in May. Readings above 50 points indicate an expansion in activity.

• Inflation concerns: According to the AiGroup, “The input price index rose to its highest level since June 2008. High prices for various metals, raw materials and imported components continue to hamper many manufacturers. Supply chain disruptions were widespread for manufacturers in May with many respondents reporting delivery delays for imported materials and inputs.”

Published by Ryan Felsman, Senior Economist, CommSec