House prices expected to soar: CommSec's Craig James

House prices expected to soar: CommSec's Craig James
House prices expected to soar: CommSec's Craig James

EXPERT OBSERVER

The Westpac/Melbourne Institute survey of consumer sentiment index fell by 1.8 per cent in January after falling by 1.9 per cent in December. The index stands at 93.4 points. Consumer sentiment is below the longer term average of 101.5 points. A reading below 100 points denotes pessimism.

The Westpac/Melbourne Institute survey of consumer sentiment includes a view on house prices. The house price index rose by 8.1 per cent in January to be up 58 per cent on the year.

In trend terms, the Internet Vacancy Index increased by 0.6 per cent in December – the biggest gain in 22 months. There are record vacancies for teachers ("Education Professionals").

The internet job vacancies data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.

What does it all mean?

  • No surprises in the monthly consumer confidence report with findings in line with the more timely weekly reports. The bushfires and East Coast drought are occupying people's thoughts at present. The worry is that the economy will soften in response to the natural disasters. Aussie consumers are not yet focussed on the substantial recovery and rebuilding operations ahead.

  • Views on the economy are clearly more downbeat compared with consumer views on their own finances and the outlook for those finances. Overall conservatism may prevent people from engaging in retail therapy, preferring instead to save and reduce debt or help others through charity donations.

  • The one stand-out feature of the monthly consumer confidence report is the question on house prices. And it is clear that Aussie consumers expect house prices to soar over 2020. The house price expectations index lifted 8.1 per cent in January to be up a massive 58 per cent on the year.

    House prices expected to soar: CommSec's Craig James

  • While positive for home owners and buyers, higher home prices are negative for budding first home buyers. The latest result is certainly something for Reserve Bank policymakers to think about.

  • The good news is that three indicators are pointing to better times for the job market – the skilled vacancy report, ABS job vacancies and the Westpac-Melbourne Institute unemployment expectations index.

  • Across Australia there is a record number of job vacancies for Education Professionals, Health and Welfare Support Workers and Health Diagnostic and Therapy Professionals.

  • Across states and territories, skilled job vacancies are at record highs in the ACT. And encouraging signs for Western Australia with vacancies lifting in the past seven months.

What do the figures show?

Consumer confidence

  • The Westpac/Melbourne Institute survey of consumer sentiment index fell by 1.8 per cent in January after falling by 1.9 per cent in December. The index stands at 93.4 points. Consumer sentiment is below the longer term average of 101.5 points. A reading below 100 points denotes pessimism.

  • The current conditions index fell by 0.7 per cent. And the expectations index fell by 2.6 per cent.

  • Three of the five components of the index fell in January:

    • The estimate of family finances compared with a year ago rose by 0.7 per cent to 82.0 points;
    • The estimate of family finances over the next year rose by 0.9 per cent to 99.0 points;
    • Economic conditions over the next 12 months fell by 5.4 per cent to 84.8 points;
    • Economic conditions over the next 5 years fell by 3.7 per cent to 87.9 points;
    • The measure on whether it was a good time to buy a major household item fell by 1.8 per cent to 113.4 points

  • Housing outlook: A good time to buy a dwelling? The index rose by 5.7 per cent to 118.8 points to be up by 3.4 per cent on the year. House price expectations rose by 8.1 per cent to 151.5 points to be up by 58 per cent on a year ago.

  • Unemployment expectations fell by 2.9 per cent to 134.0 points (implying a firmer job market).
Skilled Job Vacancies - December
  • The Department of Employment Internet Vacancy Index rose by 0.6 per cent in December. The index is 7.9 per cent lower than a year ago, although it is up 9.6 per cent above the level recorded five years ago.

  • Occupations: In December 2019 "Job advertisements increased in four of the eight occupational groups. The strongest gains were recorded for Professionals and Technicians and Trades Workers (both occupations up by 0.9 per cent), and Community and Personal Service Workers (0.6 per cent)."

  • Over the year to December 2019 "Job advertisements decreased in all occupational groups. The strongest declines were recorded for Machinery Operators and Drivers (down by 14.2 per cent), Sales Workers (12.3 per cent), Labourers (11.8 per cent), Clerical and Administrative Workers (11.2 per cent) and Managers (10.6 per cent)."

    House prices expected to soar: CommSec's Craig James

  • Detailed occupations: Over the year to December 2019, "seven of the 48 detailed occupational groups recorded increases in job advertisements. The largest increase was recorded for Health Diagnostic and Therapy Professionals (up by 520 job advertisements), followed by Education Professions (360)".

  • "The largest decrease over the year was recorded for General-Inquiry Clerks, Call Centre Workers, and Receptionists (down by 1440 job advertisements)."

  • States/Territories: Job vacancies increased in six states and territories in December: NSW (up by 0.4 per cent), Victoria (up by 1.0 per cent); Queensland (down by 0.1 per cent); South Australia (down by 0.4 per cent); Western Australia (up by 0.9 per cent); Tasmania (up by 0.5 per cent); Northern Territory (up by 1.6 per cent); and ACT (up by 0.6 per cent).
  • Over the year to December 2019, job vacancies rose in one state and one territory: NSW (down by 14.1 per cent), Victoria (down by 7.5 per cent); Queensland (down by 5.9 per cent); South Australia (down by 2.8 per cent); Western Australia (up by 2.6 per cent); Tasmania (down by 9.5 per cent); Northern Territory (down by 9.7 per cent); and ACT (up by 10.8 per cent).

  • Regions: Over the year to December 2019, in three month moving average terms, job advertisements increased in 14 of the 37 IVI regions and remained steady in one. The strongest increases were recorded in Yorke Peninsula & Clare Valley SA (up by 15.8 per cent), followed by Bendigo & High Country VIC (9.4 per cent), South West Western Australia (8.8 per cent), Canberra & ACT (8.4 per cent) and Blue Mountains, Bathurst & Central West NSW (7.1 per cent).

  • The strongest decreases in job advertisements were recorded in Sydney (down by 16.6 per cent), followed by NSW North Coast (15.1 per cent), Darwin (13.8 per cent), Launceston and Northeast Tasmania (13.1 per cent), and Tamworth and North West NSW (12.9 per cent).

  • Canberra & ACT (up by 8.4 per cent) and Perth (3.6 per cent) were the only capital city regions to record an increase in job advertisements over the year to December 2019."

What is the importance of the economic data?

  • Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: "The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since." Confident consumers may be more inclined to spend, especially on major items.

  • The Department of Employment releases a monthly Internet Vacancy Index. The index is based on a count of online job advertisements newly lodged on three main job boards (SEEK, CareerOne and Australian JobSearch) during the month. The index is the only publicly available source of detailed data for online vacancies, including around 350 occupations (at all skill levels), as well as for all states/territories and 37 regions.

What are the implications for interest rates and investors?

  • Consumers generally remain cautious. But where they are positive is in terms of the outlook for the housing market, expecting prices to rise in the months ahead. The hope is that rising home prices can boost wealth levels, confidence and consumer borrowing capacity and, in turn, boost spending – especially 'big ticket' items like cars.

  • The job market seems to be moving in the right direction. Indeed if the lift in vacancies leads to lower jobless rates, the Reserve Bank will be less inclined to cut rates. The December jobs data is out tomorrow and inflation data is released on January 29. 

CRAIG JAMES is the chief economist at CommSec. 

 

 

 

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