Strong housing finance data and Sydney auctions performance shows market recovery is continuing

Well, where to start today?

Firstly we have got the China data. GDP growth of 7.7% y/y may sound very strong, but the market was expecting better, and the quarterly result of 1.6% growth implies that perhaps future growth may be lower.

This was a bit of a kick in the guts for the market, and Australian stocks got a reality check, falling sharply by 1.6% before recovering a little, and the dollar fell sharply too to 104.3 cents.

As margin calls are activated gold prices continued to get hammered by a further 3%. The share price of gold miner Newcrest (NCM) got crucified falling by more than 8% today to below $17.92 from its high of recent years of above $40.

All looking a bit shaky, which will renew calls for a further interest rate cut.

Source: ASX

On the positive side, Australian housing finance data beat expectations with investor demand increasing by 15% y/y and reaching its highest level in more than half a decade as the property market recovery continues. The total value of dwelling commitments continues to grow:

Source: ABS

In my book Get a Financial Grip, I discussed the trend towards apartment dwelling, and how investors - having been spooked by the brutal stock market crash through 2008 and early 2009 - increasingly look to real estate as a tangible store of wealth which they feel they can better understand.

Capital city property markets were once seen as places to live. Today they are largely investment markets.

RP Data's Weekly Report yesterday showed that the highest auction clearance rates were once again in Sydney, and the fastest selling property type continues to be units in that city. This has been reflected in increasing prices in that sector.

Meanwhile, the property cycle moves on in Britain with prices up to a five-year high. As noted here before, the south-east of England is where the bulk of the housing shortage is forecast to be, and it is no surprise to see the gains led by London prices (reportedly now 17% higher than their  previous peak).

However, when adjusted for inflation, median UK house prices are below where they were at their peak, so the 'Help to Buy' scheme may well see prices move higher. Foreign investors are particularly attracted to London - especially Malaysians it seems!

Pete Wargent holds a range of finance and property qualifications and is the author of Get a Financial Grip – a simple plan for financial freedom.