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Sydney home prices lift by the most in 33 months
Home prices; Manufacturing

Home prices: The CoreLogic Home Value Index of national home prices rose by 0.77 per cent in August – the biggest increase since April 2017. And capital city home prices rose by 1.01 per cent – the biggest lift since March 2017. But regional home prices fell by 0.1 per cent.

Sydney & Melbourne home prices: Sydney home prices lifted by 1.6 per cent in August – the biggest increase since November 2016. And Melbourne home prices rose by 1.4 per cent – the strongest monthly gain since April 2017.

Top end of the market recovers: Where is the underlying improvement in the Sydney and Melbourne property markets occurring? In August, the prices of the top 25 per cent of properties by dwelling value lifted by 1.8 per cent – the most since October 2016. Similarly, the top end of the property market in Melbourne also lifted by 1.8 per cent in value in August – the most since March 2017.

Manufacturing sector: The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from 51.3 points to 53.1 points in August. But the ‘final’ CBA/IHS Markit Manufacturing Purchasing Managers’ Index fell from 51.6 to 50.9 in August. Any reading over 50 indicates expansion.

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?

• Aussie property market conditions and activity have improved, boosting hopes of a continued stabilisation in home prices and housing finance approvals. National and capital city prices both rose for a second successive month in August, led higher by the larger Sydney and Melbourne property markets.

• While national home prices increased by the most since April 2017 in August, the property market remains mixed across suburbs, regions and cities. Sydney home prices rose by the most since November 2016 and Melbourne home prices rose by the most since April 2017, but smaller capital cities such as Adelaide, Perth and Darwin saw price declines, albeit at a slower rate on average over the past three months. But it does serve to highlight the mixed outcomes across property markets.

• Policymakers have acted to stabilise the property market after two years of falling home prices, boosting home buyer confidence. Home buying intentions (‘time to buy a dwelling’ index), according to the August Westpac-Melbourne Institute Consumer Sentiment index, are the best since early 2014.

• Preliminary Domain auction clearance rates in Sydney (80 per cent) and Melbourne (76 per cent) on Saturday capped-off a solid month for property sellers. In fact, August was the best month for auction results in Sydney and Melbourne since March 2017 and August 2017, respectively.

• Where is the underlying improvement in the Sydney property market occurring? In August, the prices of the top 25 per cent of properties by dwelling value lifted by 1.8 per cent – the most since October 2016. Similarly, the top end of the property market in Melbourne also rose by 1.8 per cent in value in August – the most since March 2017.

What do the figures show?

Home prices

• The CoreLogic Home Value Index of national home prices rose by 0.77 per cent in August, the biggest increase since April 2017. But home prices fell by 5.2 per cent over the year to August.

• In capital cities, prices rose by 1.01 per cent – the biggest lift since March 2017 – to be down 5.9 per cent over the year to August. House prices rose by 0.8 per cent and apartment prices lifted by 1.5 per cent. House prices were down 6.7 per cent on a year ago and apartments were down by 3.6 per cent.

• In regional areas, house prices fell by 0.1 per cent, but apartment prices lifted by 0.1 per cent in August to be down 2.9 per cent and 3.0 per cent respectively on the year.

• The average Australian capital city house price (median price) was $626,648 and the average unit price was $538,708 in August.

• Dwelling prices rose in five of the eight capital cities in August. Home prices rose by the most in Sydney (up 1.6 per cent), followed by Melbourne (up by 1.4 per cent), Canberra (up by 0.8 per cent), Hobart (up by 0.5 per cent) and Brisbane (up by 0.2 per cent). But prices were down in Darwin by 1.2 per cent, Perth (down by 0.5 per cent) and Adelaide (down by 0.2 per cent).

• Home prices were lower than a year ago in six of the eight capital cities in August. Prices fell by the most in Darwin (down by 9.7 per cent), Perth (down by 8.8 per cent), Sydney (down 6.9 per cent), Melbourne (down 6.2 per cent), Brisbane (down 2.1 per cent) and Adelaide (down 1.1 per cent). But prices were still up in Canberra (up by 1.2 per cent) and Hobart (up by 3.1 per cent).

• Total returns on national dwellings fell by 1.5 per cent in the year to August with houses down by 2.3 per cent on a year earlier, but units were up by 0.6 per cent. In contrast, the S&P/ASX All Ordinaries Accumulation Index lifted by 8.6 per cent over the year to August.

Manufacturing Purchasing Managers’ Indexes

• The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from 51.3 points to 53.1 points in August. But the ‘final’ CBA/IHS Markit Manufacturing Purchasing Managers’ Index fell from 51.6 to 50.9 in August. Any reading over 50 indicates expansion.

• According to AiGroup, “Manufacturing conditions improved in August, with increasing levels of production and rising exports. Demand from defence and mining projects lifted the machinery and equipment sector into expansion, but the metals sector and other heavy industrial manufacturers are still reporting tough trading conditions. The food & beverages sector is still growing but recorded its lowest monthly result since November 2016, with some respondents noting higher prices and lower availability and/or quality of raw agricultural inputs because of the drought. Overseas demand for Australian manufactured products remains strong, particularly for consumable manufacturing products.”

• According to CBA/Markit, “Latest PMI survey indicated a further moderation in growth of Australia’s manufacturing sector in August. Output growth was only marginal, reflective of a weakening sales trend. Growth of overall new work slowed despite rising export sales. Softer demand conditions saw firms cut back on purchasing activity, deplete inventories as well as take on workers at a slower pace. Input inflation meanwhile intensified but charges rose only marginally.”

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 CBA 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 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 interest rates and investors?

• While it appears that a ‘soft landing’ has been engineered, housing markets still have to contend with an expected increase in property listings during the spring selling season. And the supply of apartments remain elevated, despite the sharp slowdown in high-rise building approvals. Concerns over high-rise unit defects, elevated mortgage debt and still-tight lending standards are expected to cap home price gains with modest increases likely in 2020.

• Aussie factory activity continued to rebound in August, up for a second successive month in August, according to the AiGroup. Encouragingly, all seven activity indexes and four out of six manufacturing-focused sectors expanded. Importantly, offshore demand for Aussie manufactured products is robust, despite the escalating US-China trade war and slowing global growth.

• The Commonwealth Bank Group expects two further rate cuts in November 2019 and February 2020.

Published by Craig James, Chief Economist,CommSec