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Wednesday 20

June, 201811:41 PM



Geelong & Hobart lead home price gains

Geelong & Hobart lead home price gains

The CoreLogic Home Value Index of capital city home prices fell by 0.2 per cent in May to stand 1.1 per cent lower over the year.

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01.06.2018 05:00 PM

Geelong & Hobart lead home price gains
Home prices; Manufacturing

Home prices: The CoreLogic Home Value Index of capital city home prices fell by 0.2 per cent in May to stand 1.1 per cent lower over the year. The national home price index fell by 0.1 per cent in the month to be down 0.4 per cent over the year. Hobart home prices are up 12.7 per cent over the year.

Manufacturing activity: The Australian Industry Group Performance of Manufacturing Index fell from 58.3 points to 57.5 in May. The CBA/Markit Manufacturing Purchasing Managers’ Index fell from 55.5 points to 53.2 in May. Both surveys have readings above 50 points, indicating that the manufacturing sector is expanding. 

What does it all mean?

There may be a short period where Sydney and Melbourne prices fall on an annual basis. But this is after a long period of out-performance. Over the past five years Sydney home prices rose by 55 per cent with Melbourne prices up by 50 per cent. There is still solid support for home-building in NSW and Victoria from on-going solid population growth.

Housing is all about supply and demand. There are more homes to choose from so bargaining power has shifted to buyers in many regions. But remember that housing conditions can vary from region to region.

Not long ago, Sydney and Melbourne led the way on home prices. Now Hobart and Geelong lead the way. Hobart home prices are up 12.7 per cent over the year with Geelong up 10.2 per cent. More generally Tasmanian home prices are firm together with the Central West of NSW, Coffs Harbour, Newcastle, Southern Highlands of NSW, and the Sunshine coast of Queensland.

The key gauges of manufacturing sector activity were softer in May. But more importantly the index readings remain above 50, indicating that activity is expanding. The infrastructure boom, busy home-building and solid global economic growth are solid supports for manufacturing.

What do the figures show?
Home prices

The CoreLogic Home Value Index of capital city home prices fell by 0.2 per cent in May to stand 1.1 per cent lower over the year.

The national home price index fell by 0.1 per cent in May to be down 0.4 per cent over the year.

In capital cities, house prices fell by 0.2 per cent in May and apartment prices fell by 0.3 per cent. House prices were down 1.7 per cent on a year ago, but apartments were up by 0.9 per cent.

In regional areas, home prices rose by 0.2 per cent in May to be up 2.2 per cent on the year.

The average Australian capital city house price (median price) was $694,797 and the average unit price was $574,915.

Dwelling prices fell in five of the eight capital cities in May: Home prices fell in Melbourne (down 0.5 per cent); Sydney (down 0.2 per cent); Darwin (down 0.2 per cent); and Canberra and Perth (both down 0.1 per cent).

Prices rose in Hobart (up 0.8 per cent); Adelaide (up 0.5 per cent); and Brisbane (up 0.2 per cent).

Home prices were higher than a year ago in five of the eight capital cities in May. Prices rose most in Hobart (up 12.7 per cent); Canberra (up 2.3 per cent); Melbourne (up 2.2 per cent); Brisbane (up 0.9 per cent) and Adelaide (up 0.6 per cent). Prices fell in Darwin (down 7.9 per cent), Sydney (down by 4.2 per cent); and Perth (down by 1.8 per cent).

Total returns on capital city dwellings rose by 2.2 per cent in the year to May with houses up 1.3 per cent on a year earlier and units up 4.8 per cent.

Manufacturing Purchasing Managers’ Indexes

The Australian Industry Group (AiGroup) Performance of Manufacturing Index fell from 58.3 points to 57.5 in May. The CBA/Markit Manufacturing Purchasing Managers’ Index fell from 55.5 points to 53.2 in May. Both surveys have readings above 50 points, indicating that the manufacturing sector is expanding.

AiGroup noted: “Some manufacturers reported raw material shortages or delays in May and so they drew down on their inventories to meet demand.”

“Sub-sectors that provide manufactured goods for large transport projects and the construction sector continue to report very strong levels of activity, particularly from the eastern states (albeit slowing from very high levels earlier in 2018). Manufacturers on the east coast continue to report strong demand from the civil engineering (mainly transport projects), commercial building and defence industries.”

“Although selling prices have risen in recent months, the combination of cost pressures – notably energy costs – and intense import competition continue to keep margins tight and restrain wage rises.”

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.

What are the implications for interest rates and investors?

The rebalancing of the housing market has potential to be very positive. But clearly developments in the housing sector will be watched carefully by the Reserve Bank. Just as higher home prices can be infectious, causing irrational exuberance, lower home prices could lead to irrational pessimism.

Total returns on shares have lifted 10.8 per cent over the past year while returns on capital city homes are up 3.2 per cent. Performance on these asset classes ebb and flow over time, highlighting the value of diversification.

CommSec expects official interest rates to be stable until early 2019.

Published by Craig James, Chief Economist, CommSec
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