Persistently firm growth in city home prices: Craig James

Persistently firm growth in city home prices: Craig James
Persistently firm growth in city home prices: Craig James

GUEST OBSERVER

The CoreLogic Home Value Index of capital city home prices rose by 0.7 percent in January and was up 10.7 percent over the year.

Prices rose in seven of the eight capital cities with Hobart up the most (up 1.4 percent).

Regional house prices rose by 1.1 percent in December. 

Persistently firm growth in city home prices: Craig James

 

The Performance of Manufacturing index fell by 4.2 points to 51.2 in January. A reading above 50.0 indicates that the sector is expanding.

Home price data is important for retailers, especially those focussed on consumer durables. The manufacturing data provides guidance for companies in the Industrials sector.

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Persistently firm growth in city home prices: Craig James

What do the figures show? 

Home prices 

The CoreLogic Home Value Index of capital city home prices rose by 0.7 percent in January and was up 10.7 percent over the year.

In regional Australia, house prices rose by 1.1 percent in December and were just 2.8 percent higher than a year ago. (Regional prices cover just houses and data is up to the end of December). 

Across regional Australia, house prices in NSW were up by 7.2 percent over 2016 with South Australia up 2.8 percent, Victoria and Queensland up 1.2 percent. In Western Australia, regional home prices were down 10.7 percent in 2016.

In capital cities, house prices rose by 0.5 percent in January while apartment prices rose by 2.2 percent. House prices were up 11.1 percent on a year ago and apartments were up by 8.0 percent. 

The average Australian capital city house price (median price based on settled sales over quarter) was $636,000 and the average unit price was $530,000.

Dwelling prices rose in seven of the eight capital cities in January: Hobart (up 1.4 percent), Sydney (up 1.0 percent), Melbourne (up 0.8 percent), Adelaide (up 0.5 percent), Canberra (up 0.4 percent), Perth (up 0.2 percent), and Brisbane (up 0.1 percent). Prices fell in Darwin (down 1.7 percent).

Home prices were higher than a year ago in six of the eight capital cities. Prices rose most in Sydney (up 16.0 percent); followed by Melbourne (up 11.8 percent), Hobart (up 7.8 percent); Canberra (up 6.7 percent); Adelaide (up 4.8 percent) and Brisbane (up 4.4 percent). Prices fell in Perth (down by 3.2 percent) and Darwin (down 0.7 percent).

Total returns on capital city dwellings rose by 14.4 percent in the year to January with houses up 14.7 percent on a year earlier and units up 12.5 percent.

Performance of Manufacturing

The Performance of Manufacturing index fell by 4.2 points to 51.2 in January. A reading above 50.0 indicates that the sector is expanding. The PMI has only fallen below 50 twice in the past 19 months.

AIG notes “Three of the seven seasonally-adjusted manufacturing sub-indexes expanded in January with two sub-indexes stable and two contracting. In a positive indicator for near term growth, new orders continued to expand (53.7 points). Exports expanded (54.1 points) and stock levels (56.0 points) built up over the month. Production (49.9 points) and employment (49.6 points) were stable while deliveries (47.0 points) and sales (47.6 points) contracted.”

“Comments from manufacturers in January show new orders are picking up across many sub-sectors at the start of the year. While demand appears to be patchy, some construction projects are helping activity and pockets of growth in agriculture and mining (due to some recovery in commodity prices) are lifting activity for manufacturers. As with much of 2016, exports continue to spur growth mainly due to the continued lower Australian dollar. Recently, inventories look to have built up for most manufacturers and this may impact production in coming months. Energy costs and reliability remain prominent issues for manufacturers with higher prices in particular impacting the profitability of many manufacturers.” 

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 Australian Industry Group compiles the Performance of Manufacturing Index (PMI) each month. The Australian PMI is the Australian equivalent of the US ISM manufacturing gauge. The PMI is one of the timeliest economic indicators released in Australia.

The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.

What are the implications for interest rates and investors?

CoreLogic continues to note that investors are driving key housing markets such as Sydney and Melbourne. But CoreLogic also continues to highlight the risks, with investors relying on expected capital appreciation for returns on their investment rather than rising rents. More apartments are being built, supply will catch up to demand and growth of home prices will ease over the next few years. Investors need to be aware of the risks including further actions by regulators to slow housing demand.

The broad-based health of Australian housing markets reduces the potential for further rate cuts. While fixed-term lending rates have lifted, it is still too early to canvas possible rate hikes from the Reserve Bank.

Housing is far from homogeneous and investors need to carefully do their homework on the states, suburbs and streets that are on their radar screens.

Activity in the manufacturing sector is encouraging especially the lift in new orders that has been identified in recent months. All the published data and anecdotes indicate that business conditions have markedly improved since the flat spot recorded for the economy in mid-2016. 

Persistently firm growth in city home prices: Craig James

Craig James is the chief economist at CommSec.

Craig James

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

Tags: 
Housing Affordability Dwelling Prices

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