For home prices it is Sydney first, daylight second: Craig James

For home prices it is Sydney first, daylight second: Craig James
For home prices it is Sydney first, daylight second: Craig James


In terms of home prices, it is Sydney first, daylight second. In August, Sydney prices rose by 1.1% while next-placed Adelaide saw prices rise by 0.7%. And in the majority of capital cities prices were flat or falling in the month. Over the year Sydney prices were up 17.6%. Next-placed Melbourne had prices up 10.6% on the year. But in three capital cities, home prices are below year ago levels. And home prices in regional Australia were up just 2.3% over the year.

Sydney home prices will slow over the year as more homes are built. Already gross yields on homes are recording the slowest growth rates on record in Sydney and Melbourne. And rents are growing at the slowest annual rates on record.

If you are a tenant, it is good times. If you are a property seller in Sydney, times are still good. If you are a home buyer in Sydney, there are challenges, with prices still lifting strongly. If you are a home buyer outside Sydney or Melbourne, conditions are favourable. Clearly there is no such thing as a single housing “market”.

More good news on the economy – consumers are still happy and the manufacturing sector is expanding. Yet more reason for the Reserve Bank to be pleased at the evolving situation.
For home prices it is Sydney first, daylight second: Craig James
What do the figures show?
Home prices
The CoreLogic RP Data Hedonic Australian Home Value index of capital city home prices rose by 0.3% in August to stand 10.2 per cent higher than a year ago.
House prices rose by 0.3% in August while apartments rose by 0.8%. House prices were up 10.6% on a year ago and apartments were up by 7.4%.
The average Australian capital city house price (median price based on settled sales over quarter) was $600,000 and the average unit price was $509,900. The average Sydney house price was $900,000 – still well short of a $1 million. 
Dwelling prices rose in just three of the eight capital cities in August: Sydney (up 1.1 per cent), Adelaide (up 0.7 per cent) and Darwin (up 0.3 per cent). Prices were flat in Melbourne and Brisbane. Prices fell in Canberra (down 1.7 per cent), Perth (down 1.3 per cent) and Hobart (down 1.1 per cent).

Home prices were higher than a year ago in five of the eight capital cities. Prices rose most in Sydney (up 17.6 per cent), followed by Melbourne (up 10.6 per cent), Brisbane (up 3.9 per cent), Adelaide (up 1.8 per cent), and Hobart (up 1.5 per cent). Price fell in Darwin (down 4.6 per cent), Perth (down 1.8 per cent) and Canberra (down 0.9 per cent).

Total returns on capital city dwellings in the year to August rose by 14.4 per cent with houses up 14.7 per cent on a year earlier and units up 12.3 per cent.
RP Data report: “While the August results indicate a slowdown in the rate of appreciation in dwelling values, the quarterly figures highlight just how strong the housing market has been over the past three months; combined capital city dwelling values are 5.3 per cent higher over the three months to the end of August this year.”

“Growth in weekly rental rates shifted to a new record low for annual growth over the month of August. Across the combined capital cities, the median weekly rental rate rose by just 0.7 per cent over the past twelve months, with house rents up 0.5 per cent and unit rents up a higher 1.6 per cent.
For home prices it is Sydney first, daylight second: Craig James

Since May 2013, dwelling values have risen at a faster pace than weekly rents. “The result of the disparity between dwelling values and dwelling rents has been a consistent downwards trend in gross rental yields.

Gross yields are at record lows in both Sydney and Melbourne. A typical dwelling is attracting a gross yield of just 3.3 per cent and 3.1 per cent respectively across Australia’s two largest cities.”

Performance of Manufacturing

The Performance of Manufacturing index rose by 1.3 points to 51.7 in August. A reading above 50.0 indicates that the sector is expanding. The survey is volatile from month to month and is not providing accurate guidance on economic conditions. Orders, employment, capacity use and input prices rose in August but production, exports, sales, selling prices and wages fell.
Consumer sentiment

The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.3 per cent 113.3 in the week to August 30. Confidence is up 0.6 per cent over the year and still up on the average of 111.5 since 2014.

Three of the five components of the index rose in the latest week:

  • The estimate of family finances compared with a year ago was down from +11 to +10; The estimate of family finances over the next year was up from +22 to +27;
  • Economic conditions over the next 12 months was down from -6 to -11;
  • Economic conditions over the next 5 years was up from +7 to +9;
  • The measure of whether it was a good time to buy a major household item was up from +31 to +32 points. What is the importance of the economic data?
The CoreLogic RP Data 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- RP Data Hedonic Index includes all properties. Home prices are an important driver of wealth and spending. 
The Australian Industry Group and PricewaterhouseCoopers compile 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.

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

What are the implications for interest rates and investors?

  • The Reserve Bank won’t be lifting or cutting interest rates any time soon. The strong gains in Sydney home prices aren’t influencing policy decisions – there is just no fundamental reason to change interest rate settings at present.

  • CommSec expects interest rate settings to remain unchanged over 2015.

  • The resilience of consumer sentiment is positive for retailers. 


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For home prices it is Sydney first, daylight second: 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.

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