Slowest growth of home prices in eight months

Home prices; purchasing manager surveys

The CoreLogic home value index rose by 1.5 per cent in September, the slowest growth in eight months.

The AiGroup purchasing managers index (PMI) for manufacturing fell from 51.6 to 51.2 in September. The equivalent Markit PMI rose from 52 to 56.8. Any PMI reading above 50 indicates an expansion in activity.

Today’s data: Home prices

The CoreLogic Home Value Index of national home prices rose by 1.5 per cent in September to be 20.3 per cent higher over the year.

• All the state and territory price changes are in the accompanying table. Prices rose in all capital cities in September, as well as over the quarter and year. At a regional level, of note home prices rose in all but five of the 88 SA4 regions. And home prices were at record highs in 66 regions.

• In capital cities, prices also lifted by 1.5 per cent to be up 19.5 per cent over the year – the strongest annual pace in 19½ years. In regional areas, home prices rose by 1.7 per cent to be up 23.1 per cent on the year – the strongest annual growth rate in 17½ years.

Total returns on national dwellings rose by 24.1 per cent in the year to September. In contrast, the S&P/ASX All Ordinaries Accumulation Index rose by 31.5 per cent over the year to September.

• While the overall the picture remains one of solid price growth, it’s important to note that the monthly pace of growth continues to ease. The 1.51 per cent lift in home prices in September was the smallest increase in eight months and price growth has eased in each of the past four months. But while the monthly growth pace has peaked, the annual rate may not peak until around February at around 25 per cent. That would still be slower than the peak growth set in 1988 at 31.9 per cent.

• Housing is all about demand and supply, and up to now demand has been super strong, underpinned by low interest rates, government grants and good job security. Supply has been soft due to Covid-wary vendors. But as noted by CoreLogic, supply could lift in November and December as lockdowns end. Also a near record number of homes are being built. And weaker housing affordability must restrain demand at some point.

• High and rising home prices could cause policymakers to tighten credit conditions, an influence on operating conditions for operators in the financials sector of the sharemarket.

Today’s data: Purchasing managers indexes

The AiGroup purchasing managers index (PMI) for manufacturing fell from 51.6 to 51.2 in September. The equivalent Markit PMI rose from 52.0 to 56.8. Any PMI reading above 50 indicates an expansion in activity.

• The results are a little confusing. Both are surveys of purchasing managers that are employed in the manufacturing sector. But one index rose sharply in September and the other eased. Admittedly both indexes are above 50, indicating that the manufacturing sector is growing, and that is reassuring given south-east Australian lockdowns.

• AiGroup noted: “Manufacturing activity and sales continued to be severely disrupted in NSW and Victoria in September due to ongoing lockdowns… Outside of NSW and Victoria, respondents continued to report strong demand for a wide range of locally manufactured products, including demand from customers in the construction, agricultural and transport sectors.”

• And Markit made some comments about supply chains and prices that is very much the theme in businesses across the globe. “Improved demand conditions alongside ongoing COVID-19 restrictions however contributed to worsening supply constraints in September as lead times and price pressures both built situations that will be worth monitoring going forward.”

• “Manufacturers continued to raise their employment levels and at a faster rate in September. Purchasing activity likewise rose, with manufacturers reporting both the need to meet current and anticipated demand. In turn, stocks of purchases growth picked up at the fastest rate since May, which was prior to when the latest widespread lockdowns were implemented.”

Published by Craig James, Chief Economist, CommSec