Home prices hit record highs in 11 regions: CommSec's Ryan Felsman

Home prices hit record highs in 11 regions: CommSec's Ryan Felsman
Home prices hit record highs in 11 regions: CommSec's Ryan Felsman

EXPERT OBSERVER

Aussie home prices eased for a fourth successive month in August. Price weakness was most pronounced in the larger virus-affected Melbourne and Sydney housing markets, exceeding solid price gains across the relatively virus ‘free’ capital cities of Canberra and Darwin. Prices in Hobart, Adelaide, Perth and Brisbane all remained stable.

Regional home prices also held up, highlighting the increasing divergence between virus ‘hotspots’ and the rest of the country. In fact, home prices rose in 34 out of 88 SA4 regions in August with home prices lifting the most in the NSW Southern Highlands & Shoalhaven (up 1.2 per cent), South East Tasmania (up 1.1 per cent), Coffs-Harbour-Grafton (NSW), North West Victoria, Queensland’s Wide Bay and Darwin (all up 1 per cent).

It certainly appears that ‘lifestyle’ regions could stand to benefit from a potential virus-induced exit of people from big cities - encouraged by changing working arrangements - allowing them to work from home. Home prices hit all-time highs in 11 SA4 regions in August, including the ACT, Adelaide-South (SA), Brisbane-East (QLD), Brisbane – North (QLD), Moreton Bay – North (QLD), Capital Region (NSW), Central West (NSW), Coffs-Harbour Grafton (NSW), Richmond-Tweed (NSW), Gold Coast (QLD) and South East Tasmania.

Ahead of tomorrow’s historic June quarter national accounts report an eclectic mix of data has been released this morning. Home prices, weekly consumer confidence and Commonwealth Bank (CBA) credit and debit card spending figures were all issued along with manufacturing purchasing managers’ indexes.

The economic impact of level four restrictions in Victoria is becoming increasingly apparent. Melbourne home prices are falling at the quickest pace nationally. Consumer sentiment lost momentum last week, card spending in Victoria continues to weaken and the AiGroup’s manufacturing activity gauge contracted for the first time in three months. The AiGroup noted, “Some Victorian businesses said they lost business to interstate competitors because of stage 3 and 4 activity restrictions being reimposed in August.”

What do the reports and figures show?

Home prices - August

The CoreLogic Home Value Index of national home prices fell by 0.4 per cent in August. But home prices were still 5.8 per cent higher over the year.

In capital cities, prices fell by 0.5 per cent, but prices were still up 6.3 per cent over the year. House prices also fell by 0.5 per cent in August and apartment prices eased by 0.4 per cent. House prices were still up 6.6 per cent on a year ago and prices of apartments increased by 5.4 per cent.

In regional areas, home prices were flat in August with house prices up by 0.1 per cent, but apartment prices fell by 0.4 per cent. Regional home prices were up 4 per cent on the year to August.

The average Australian capital city house price (median price) in August was $669,867 and the average unit price was $566,034.

Home prices were lower in three of the eight capital cities in August. Home prices fell by the most in Melbourne (down 1.2 per cent), followed by Sydney (down 0.5 per cent) and Brisbane (down 0.1 per cent). But prices were broadly flat in Adelaide and Perth. Prices rose most in Darwin (up 1 per cent), followed by Canberra (up 0.5 per cent) and Hobart (up 0.1 per cent).

Home prices were higher than a year ago in six of the eight capital cities in August. Prices rose the most in Sydney (up 9.8 per cent), followed by Canberra (up 6.9 per cent), Melbourne (up 5.9 per cent), Hobart (up 5.5 per cent), Brisbane (up 3.5 per cent) and Adelaide (up 2.7 per cent). But prices were down in Perth (down 2 per cent) and were broadly flat in Darwin.

Total returns on national dwellings rose by 9.6 per cent in the year to August with houses and units both up by 9.6 per cent on a year earlier. In contrast, the S&P/ASX All Ordinaries Accumulation Index fell by 3.3 per cent over the year to August.

Consumer sentiment – Week ended August 30

The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.7 per cent to 90.2 (long-run average since 1990 is 112.7). Sentiment is still up by 38.1 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

All five major components of the index fell last week:

 The Commonwealth Bank (CBA) credit card data – Week ended August 28

According to the Commonwealth Bank (CBA), card spending in the week to August 28 was up 1.4 per cent on a year ago, compared to a 5.1 per cent lift for the week ended August 21. Online spending rose 19.5 per cent on a year ago (previous week: +26.2 per cent), but in-store spending was down 5.8 per cent (previous week: -3.8 per cent).

CBA noted, “Annual spending growth fell in all jurisdictions over the week. Weak spending in Victoria [down 13.7 per cent in the week to August 28 on a year ago] may be spilling over to other jurisdictions. Growth in spending on household furnishings and equipment [up 19.6 per cent in the week to August 28 on a year ago, down from 29.5 per cent in the prior week] eased over the week.”

Manufacturing Purchasing Managers’ indexes - August

The AiGroup’s Performance of Manufacturing Index (PMI) fell from 53.5 in July to 49.3 in August – the first contraction in activity (reading below 50) in three months.

Declines in activity were reported for new orders (down 6.1 points to 46.6), employment (down 3.2 points to 50.2) and production (down 3 points to 53.4). But exports lifted by 1.8 points to 52.2.

Victoria’s PMI fell by 9.3 points to 44 points. Queensland’s PMI (up 9.7 points to 47.1) continued to contract. In contrast, the PMI in NSW (down 5.2 points to 51) and South Australia (up 3.3 points to 65.3) expanded in August.

The AiGroup said, “Some Victorian businesses said they lost business to interstate competitors because of stage 3 and 4 activity restrictions being reimposed in August. Manufacturers with multiple sites around the country said the Victorian lockdown had detracted from demand in other states as well as in Victoria. Businesses in all states reported ongoing difficulties with obtaining raw materials from overseas and/or reduced customer demand due to the recession.”

And, “Some manufacturers benefited from stockpiling ahead of stage 4 restrictions in Victoria while a few non-Victorian businesses noted they had won production contracts from Victorian competitors. Manufacturers related to food & beverages (including printing & packaging for groceries), medical & pharmaceutical products, and some parts of freight transport, are reporting robust conditions. Many Australian manufacturers are reporting more interest in Australian made products in place of imports, with some noting that their suppliers are thinking about ‘reshoring’ production activities.”

The ‘final’ CBA/IHS Markit Manufacturing Purchasing Managers' Index eased from 54 in July to 53.6 in August. Any reading above 50 indicates an expansion in activity.

According to CBA/IHS Markit, “The recovery in the Australian manufacturing sector was sustained in August, building on the gains recorded at the start of the third quarter, according to the latest PMI data. However, the survey signalled a loss of growth momentum, owing partially to lockdown measures reimposed in Victoria. Output and new orders both increased further, but at slower rates. Supply chains remained under severe pressure, while job losses persisted amid efforts to control costs. Input cost inflation intensified in August.”

What are the implications for investors?

Home prices have remained resilient in the face of the COVID-19 health crisis and economic shock. Home lending data has shown tentative signs of a recovery with transaction volumes lifting in May and June. And the value of loan refinancing approved for owner-occupiers was the second highest on record in June as households continued to reduce their mortgage repayments. July lending data is due next week.

CoreLogic has noted, “active listing numbers have remained extremely low, demonstrating both a lower than average amount of fresh stock being added to the market, and a strong rate of absorption. So far there has been no evidence of urgent or distressed listings starting to pile up."

And on the rental market, CoreLogic said, “rental listings data show advertised rental supply in select inner city areas has more than doubled between mid-March and early August",

Rising unemployment, lower inbound migration, state border restrictions, excess supply of dwellings, the eventual tapering of government household income payments and bank mortgage deferrals could yet trigger sharper falls in home prices. Of course, much depends on Australia’s success at containing the virus with the level of government restrictions having a significant impact on regional housing market activity. In fact, some ‘lifestyle’ towns and cities are already benefiting from a potential structural shift in working arrangements and possible decentralisation of populations out of big cities.

RYAN FELSMAN is a Senior Economist at CommSec

Ryan Felsman

Ryan Felsman

Ryan Felsman is a Senior Economist at CommSec

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House Prices Property Prices

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