Accentuate the positive, good signs for the housing industry: Michael Matusik

A fair bit happened over the last two weeks.  So here is a quick update to help get your head in gear.  

Prices

Not a 'bubble', but home prices lifting from a low base in response to very favourable influences such as low interest rates, undersupply of new housing starts and strong population growth.

The latest house price results from RP Data – for the year to September – suggest a rather tame residential market.

• National growth 3.7%

• Sydney 8.0%

• Perth 7.6%

• Melbourne 5.4%

• Canberra 3.7%

• Darwin 2.2%

• Brisbane 1.1%

• Adelaide -0.8%

• Hobart -2.9%

Remember that consumer price index – for 2012/13 – was 2.6%.

Over the past decade, Sydney home prices have only barely grown in line with inflation (up 2.7% per annum).  The current lift in prices since mid-2013 merely reflects investors and home buyers finally embracing attractive conditions.

Again, for mine, what we are experiencing is the normal machinations of the property cycle.

Population growth

Australia’s population grew by 397,400 last year to reach 23 million.  A year ago the country’s residents increased by 367,000 people and during 2011 the yearly escalation was just 305,000 – the lowest rate of annual increase in a bloody long while.

Queensland’s population is growing by 93,000 people each year, similar to NSW.  Western Australia is seeing an 83,000 annual increase; yet Victoria remains the star, lifting its population by 102,000 new people over the last 12 months.

Queensland’s population growth is starting to stabilise – reflecting a plateau in the more labour intensive side of resource sector investment.  This should result in less interstate migration to Queensland, WA and NT in coming years.

More bums on seats might not be everyone’s cup of tea – but it does increase housing demand, which in turn should lead to more residential construction.  

Thankfully, new housing starts are starting to improve, albeit from a low base.

Housing construction

There were 163,000 new homes approved across Australia this year, which is 17,000 more than last year.

Most new starts are still detached houses (95,000) versus 67,000 attached dwellings.  But apartment starts are up 20% on last year, whilst detached housing construction rose just 6%.

A similar trend can be found in Queensland, with 30,000 new homes underway this year, against 27,000 during 2012.  Interestingly, new detached house starts are down 1,000 or 5% in Queensland, whilst new apartment construction is up 50% – 12,000 approvals in the 12 months to August 2013 versus 8,000 the year before.

New sales

In response to strong demand for established dwellings and rising population growth, new home sales are now starting to rise, up more than 20% on a year ago – the strongest growth in four years.

This is great news which hopefully can be sustained.

In August, house sales increased by 10% in Western Australia, 8% in South Australia, 7% in New South Wales, 4% in Queensland and 2% in Victoria. 

Confidence

The Westpac/Melbourne Institute index of consumer sentiment rose by about 5% in September - a three-year high.  This index is up 13% over the year.

Amazingly, cash remains the wisest place to put new savings according to the survey.  But this is falling.  The next highest was real estate (28%); followed by pay debt (14%) and shares (9%).

In support, the NAB business survey for August reported a lift in the confidence index to 27-month highs.  A further improvement is expected now that the election is out of the road.

The improvement in both business and consumer confidence now needs to be validated.  We need to start embracing the positives.  In the past five elections, confidence has lifted around the time of the poll.  But a few months later, other issues had taken over as confidence drivers.

It is important that the new federal government builds on the momentum that is developing.

Anyway, we will know more when Westpac releases its October consumer sentiment report.  The last consumer sentiment survey period straddled the election day so the October survey is the first monthly survey since September 7.  However the Roy Morgan weekly survey has continued to publish and it has been rising in recent weeks.

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