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December, 2018 6:49 PM



Aussie home prices dip in April

Aussie home prices dip in April

The CoreLogic Home Value Index of capital city home prices fell by 0.3 per cent in April to stand 0.3 per cent lower over the year.

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01.05.2018 04:42 PM

Home prices dip; Happy Aussie consumers
Home prices; Manufacturing; Consumer sentiment

Home prices: The CoreLogic Home Value Index of capital city home prices fell by 0.3 per cent in April to stand 0.3 per cent lower over the year. The national home price index fell by 0.1 per cent in the month but was up 0.2 per cent over the year. It was the first annual decline in capital city home prices in 5½ years.

Record manufacturing expansion: The Australian Industry Group Performance of Manufacturing Index fell by 4.8 points to 58.3 points in April. The CBA/Markit Manufacturing Purchasing Managers’ Index rose by 1.2 points to 55.5 points in April. Both surveys have readings above 50 points, indicating that the manufacturing sector is expanding.

Consumer sentiment: The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7 per cent to an 11-week high of 119.2. Confidence is up by 6.1 per cent over the year and above the average of 113.6 since 2014

What does it all mean?

The great re-balancing of the housing market continues. In Sydney more homes are being completed, leading to more balanced conditions between supply and demand. Similarly, in Melbourne. But in Hobart, there is still not enough stock on the market to meet the demand for homes. Home prices continue to rise at a double-digit annual rate.

Buyers have greater bargaining power in many housing markets. Clearly that’s great news for first home buyers. With interest rates at record lows and employment rising, demand for homes is well supported. As a result, annual declines in home prices are seen as a more temporary phenomenon. Unfortunately when home prices are falling, some perceive this as a crisis and when home prices are soaring, it’s also a crisis. In reality, it is normal for home prices to ebb and flow over time as supply adjusts to changes in demand.

Aussie consumers are feeling relaxed at present. Petrol prices may be rising and the Aussie dollar falling, but talk of tax cuts is brightening spirits and the sharemarket continues to lift from lows – another source of encouragement.

Australian businesses continue to advise that they are doing well. There is a raft of business surveys released every month, but the latest soundings from manufacturers indicate that activity is growing. In fact the long-running AiGroup survey is in agreement with the NAB business survey in indicating business conditions are around the best they have been in decades.

What do the figures show?
Home prices

The CoreLogic Home Value Index of capital city home prices fell by 0.3 per cent in April to stand 0.3 per cent lower over the year. 

The national home price index fell by 0.1 per cent in April but was up 0.2 per cent over the year.

In capital cities, house prices fell by 0.4 per cent in April and apartment prices rose by 0.1 per cent. House prices were down 1.0 per cent on a year ago, but apartments were up by 1.9 per cent.

In regional areas, home prices rose by 0.4 per cent in April to be up 2.4 per cent on the year.

The average Australian capital city house price (median price) was $694,944 and the average unit price was $575,191.

Dwelling prices fell in three of the eight capital cities in April: Home prices fell in Sydney (down 0.4 per cent); Brisbane (down 0.1 per cent) and Melbourne (down 0.4 per cent). Prices rose in Hobart (up 1.2 per cent); Darwin and Canberra (both up 0.6 per cent); Adelaide (up 0.1 per cent). Perth prices were largely unchanged.

Home prices were higher than a year ago in five of the eight capital cities in April. Prices rose most in Hobart (up 12.7 per cent); Melbourne (up 3.7 per cent); Canberra (up 2.6 per cent); Brisbane (up 0.9 per cent) and Adelaide (up 0.8 per cent). Prices fell in Darwin (down 7.7 per cent), Sydney (down by 3.4 per cent); and Perth (down by 2.3 per cent).

Total returns on capital city dwellings rose by 3.0 per cent in the year to April with houses up 2.0 per cent on a year earlier and units up 5.9 per cent.

Manufacturing Purchasing Managers’ Indexes

The Australian Industry Group (AiGroup) Performance of Manufacturing Index fell 4.8 points to 58.3 in April. The April 2018 result marked a nineteenth month of expanding or stable conditions for the Australian PMI® and the longest run of continuous expansion since 2005.

AiGroup said: “Capacity utilisation eased to 79.9 per cent of available capacity in April, after a record high in March. This is still high by historical standards and suggests some manufacturers will need more investment and/or employment in order to meet future growth in demand.”

“The manufacturing selling price sub-index increased by 5.3 points to 57.5 points, indicating price increases for manufacturers’ customers in April. Although monthly data can be volatile, continuing expansion in this sub-index (results above 50 points) suggests that more of the cost pressures from manufacturing inputs (especially energy input costs) are being passed on to their customer base.”

The CBA/Markit Manufacturing Purchasing Managers’ Index rose from 54.3 points in March to 55.5 points in April.

Readings above 50 points indicates that the sector is expanding.

CBA/Markit notes: “Our concerns about capacity pressures remain. The backlog of work is still rising, supplier delivery times are still lengthening and some demand is being met by running down stocks. These capacity pressures are helping support labour demand. But inflation risks are rising as well. Growth in input and output prices are at the high end of the survey range.”

Consumer Sentiment

The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7 per cent to an 11-week high of 119.2. Confidence is up by 6.1 per cent over the year and above the average of 113.6 since 2014.

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

* The estimate of family finances compared with a year ago was up from +6.2 to +8.0;
* The estimate of family finances over the next year was up from +29.2 to +29.5;
* Economic conditions over the next 12 months was up from +7.4 to +11.6;
* Economic conditions over the next 5 years was down from +12.8 to +12.0;
* The measure of whether it was a good time to buy a major household item was down from +36.3 to +35.1. 

The measure of inflation expectations 2 years ahead was stable at 4.4 per cent.

What is the importance of the economic data?

The CoreLogic 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 Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.

The Australian Industry Group compile the Performance of Manufacturing Index and Performance of Services index each month. CBA and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia. The surveys are useful not just in showing how key sectors are performing but also in providing some sense about where they are headed. 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?

Home prices are still rising, but at a far slower pace – removing an inflationary risk from the environment. But business conditions are strong, with firms saying that price pressures are emerging. Indeed, some manufacturers are passing on some of the higher input costs. This is still a watch and wait situation for the Reserve Bank. But rate hikes are more likely ahead than rate cuts.

CommSec expects official interest rates to be stable until late 2018 at the earliest.

Published by Craig James, Chief Economist, CommSec
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