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Used vehicle prices up 25% over year

New home sales; Home prices; Used vehicle prices

Used vehicle prices: In the week to September 14, used vehicle prices rose 3.4 per cent according to Datium Insights. Used vehicle prices in August were up 25 per cent on the year.

¾ New home sales: According to the Housing Industry Association, private house sales rose 3.6 per cent in August. Sales for the three months to August were up 36.5 per cent on a year ago.

• Home price update: In the first 16 days of September, home prices in the five mainland capital cities were down 0.2 per cent compared with the end of August. Prices were mixed across the cities: Sydney (-0.3 per cent); Melbourne (-0.5 per cent); Brisbane and Adelaide (both up 0.3 per cent); Perth (up 0.1 per cent).

Data on home prices influences spending and wealth. Used vehicle prices affect consumer wealth and affect vehicle affordability. New home sales are a guide into conditions in home building construction.

What does it all mean?

• Three indicators and three encouraging stories. New home sales have soared over the past three months under the influence of the HomeBuilder Scheme. Used vehicle prices have soared in response to higher demand and lower stock levels. And home prices continue to hold up, supported by bank lending and low interest rates.

• The surprise packet is the used vehicle market. Most car owners expect to see the value of their vehicles eroding over time. But in the COVID-19 era, prices for second-hand vehicles are rising. Aussies are more cautious about using public transport. As a result, people are holding on to their vehicles and more people are looking to purchase an extra vehicle. So demand is up, supply is down and prices are up. Overlaid is the fact that global vehicle production has fallen in the past six months, supporting both new and used vehicle prices. Super-low interest rates are also keeping car financing costs down.

• Up to May, Sydney and Melbourne home prices led the way higher alongside Hobart. Now Sydney and Melbourne prices are correcting and it’s the turn of Brisbane and Adelaide to drive national home prices higher. While the jobless rate has risen, interest rates are at generational lows and banks continue to lend,

What do the reports and figures show?

New Home Sales

• According to the Housing Industry Association private house sales rose 3.6 per cent in August. Sales for the three months to August were up 36.5 per cent on a year ago.

The HIA report:

• “New home sales for the six months to August 2020 were 8.7 per cent higher than in the same period the year before.

• New Home Sales in Western Australia were 91.1 per cent higher in the past six months than in the same period last year and 4.2 per cent higher in Queensland for the same period of time.

• New Home sales were static or lower for the past six months in Victoria, New South Sales, and South Australia as the pickup in sales due to HomeBuilder have not offset the losses due to the COVID recession.

• Sales in WA at this time in 2019 were at record low levels following the bottom of the mining investment cycle, a situation that was exacerbated by the credit squeeze in 2018.

• The combined impact of HomeBuilder, the WA State Government’s Building Bonus and pent-up demand for housing will see home building pull the WA economy forward. The surge in home building work from as early as the December quarter will see more skilled workers return to WA pursuing employment opportunities which will also underpin demand for this new housing stock.”

CoreLogic Daily home value index

• In the first 16 days of September, home prices in the five mainland states were down 0.2 per cent compared with the end of August.

• Prices were mixed across the cities: Sydney (-0.3 per cent); Melbourne (-0.5 per cent); Brisbane and Adelaide (both up 0.3 per cent); Perth (up 0.1 per cent).

Used vehicle market

• Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. In the week to September 14, used vehicle prices rose by 3.4 per cent after lifting 1.6 per cent in the previous week.

• In August, used vehicle prices were up 25 per cent over the year according to the Datium Insights – Moody’s Analytics Used Vehicle Price Index.

• The authors of the report noted: “Demand for wholesale used vehicles was robust last month. The Datium Insights – Moody’s Analytics Used Vehicle Price Index increased 25 per cent on a year-ago basis in August. This is the highest rate for a series that goes back to 1999. Car prices rose 22.9 per cent while truck prices increased 32.1 per cent. Vehicle retention value, measured as price/MSRP, rose 25.2 per cent compared with the same month last year, with the car component increasing 21.6 per cent and the truck component increasing 29.4 per cent.”

• In the latest week SUV (+3.6 per cent) and Light Commercials (+3.4 per cent) drove increases in used vehicle prices.

• Datium Insights reports that the supply of vehicles fell 4.1 per cent over the week to September 14 and that “stock remains considerably low.”

What is the importance of the economic data?

• Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. The data assists in gauging the strength of a key component of consumer spending and provides insights on the Autos and components sector of the sharemarket.

• The Housing Industry Association compiles a New Home Sales report each month. The data provides insights into the home construction sector.

• CoreLogic maintains a daily index of home values that provides insights into consumer spending and the state of the established housing market.

What are the implications for investors?

• Investors have a raft of relatively new indicators to watch to get a sense of how individual sectors and companies are faring, as well as the broader economy. The Reserve Bank, governments and both regional and major banks are playing key roles in supporting economic recovery. However, there is still some way to go.

Published by Craig James, Chief Economist, CommSec