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Sunday 23

September, 201810:45 AM



Aussie home prices recede

Aussie home prices recede

The CoreLogic Home Value Index of capital city home prices fell by 0.4 per cent in August to stand 2.9 per cent lower over the year.

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03.09.2018 05:03 PM

Home prices recede; Robust manufacturing
Home prices; Manufacturing

Home prices: The CoreLogic Home Value Index of capital city home prices fell by 0.4 per cent in August to stand 2.9 per cent lower over the year. The national home price index fell by 0.3 per cent in the month to be down 2.0 per cent over the year.

Manufacturing activity: The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from 52.0 points to 56.7 in August. And the CBA/Markit Manufacturing Purchasing Managers’ Index rose from 52.4 points to 53.2 in August. Both surveys have readings above 50 points, indicating that the manufacturing sector is expanding.

What does it all mean?

The re-balancing in Aussie home prices continues. National home prices are down for the 11th straight month but prices are still only down 2.2 per cent over that period. Investor demand has softened (including that of foreign investors) while there are more homes on markets, giving buyers greater choice. Hobart and Adelaide are the outperforming capital cities while Melbourne, Sydney and Perth are the weakest markets. The correction in home prices is very much the correction we had to have. But with investors withdrawing from the market and pressure on buyers to renegotiate interest-only loans, the Reserve Bank and regulators need to monitor the trends closely.

CoreLogic report: “Geelong remains the best performing regional market in the country, with dwelling values up 11.8 per cent over the past twelve months. Regional areas of Tasmania are second and third on the regional leagues tables, with dwelling values up 9.9 per cent across the South East region of Tasmania and 9.3 per cent higher across Launceston and the North East region of Tasmania. Geelong was the only regional market that recorded double-digit value growth over the past 12 months while a year ago, eight regional markets had recorded double-digit value growth.”

Business conditions remain positive, but cost pressures continue to rise. There was a similar theme in the recently-completed profit-reporting season. Aggregate expenses by ASX 200 companies lifted 7.6 per cent in the year to June with revenues up 7.4 per cent. The good news for Aussie manufacturers is that the weaker dollar is proving positive for export orders.

The wages sub-index in the AiGroup manufacturing survey has hit record highs. While the result may reflect the minimum wage increase, it also supports the Reserve Bank’s observations of tighter job markets in certain regions and in certain professions.

What do the figures show?
Home prices

The CoreLogic Home Value Index of capital city home prices fell by 0.4 per cent in August to stand 2.9 per cent lower over the year. The national home price index fell by 0.3 per cent in the month to be down 2.0 per cent over the year.

In capital cities, house prices fell by 0.4 per cent in August and apartment prices fell by 0.3 per cent. House prices were down 3.5 per cent on a year ago and apartments were down by 1.0 per cent.

In regional areas, home prices were down by 0.2 per cent in August, but were still up 1.6 per cent on the year.

The average Australian capital city house price (median price) was $686,578 and the average unit price was $568,086.

Dwelling prices fell in five of the eight capital cities in August. Home prices fell in Melbourne and Perth (both down 0.6 per cent); Sydney (down 0.3 per cent); Brisbane (down 0.2 per cent) and Hobart (down 0.1 per cent).

Prices rose in Canberra (up 0.5 per cent), Adelaide (up 0.3 per cent); and Darwin (up 0.1 per cent).

Home prices were higher than a year ago in four of the eight capital cities in August. Prices rose most in Hobart (up 10.7 per cent); Canberra (up 2.3 per cent); Adelaide (up 1.0 per cent); and Brisbane (up 0.9 per cent). Prices fell in Sydney (down by 5.6 per cent); Darwin (down 4.0 per cent), Perth (down by 2.3 per cent); and Melbourne (down 1.7 per cent).

Total returns on capital city dwellings rose by 0.3 per cent in the year to August with houses down by 0.6 per cent on a year earlier and units up 3.0 per cent. Returns on homes nationally are up by 1.5 per cent.

Manufacturing Purchasing Managers’ Indexes

The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from 52.0 points to 56.7 in August. And the CBA/Markit Manufacturing Purchasing Managers’ Index rose from 52.4 points to 53.2 in August. Both surveys have readings above 50 points, indicating that the manufacturing sector is expanding. 

CBA noted: “Future business expectations remain at high levels. The lower Aussie dollar has improved our international competitiveness and is acting as a buffer against trade war concerns. New export sales, for example, jumped in August. Price trends also suggest some underlying demand support. Output prices rose at their fastest pace in the survey’s history. Panellists report that output prices are responding to cost pressures, especially higher fuel, metal and food prices.”

AiGroup highlights: "Drought conditions in New South Wales and Queensland are now having an adverse impact on input costs and sales for some manufacturers. Food and beverage manufacturers are reporting disrupted supply and higher prices of raw agricultural inputs, while manufacturers operating in the metals and machinery and equipment sub-sectors who sell to the agricultural sector or its supply chain are reporting reduced sales.

In the AiGroup survey, “The input prices sub-index jumped by 9.3 points to 77.4 points in August, its highest result since March 2011; The average wages sub-index continued to rise in August, increasing by 4.1 points to a record high of 64.7 points in August; The manufacturing selling price sub-index rose by 5.1 points to 58.1 points, indicating price increases for manufacturing customers in August. This is the highest result for this pricing subindex since April 2017…”

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?

CommSec doesn’t expect a change in the cash rate until late 2019.

The Reserve Bank isn’t fazed by the correction in home prices, but it can’t be complacent either – the situation has to be closely monitored to ensure it doesn’t take on a life of its own.

Globally-focussed businesses are benefitting from the weaker Aussie dollar and good global demand. The issue to watch is the ‘US versus everyone’ trade wars.

Published by Craig James, Chief Economist, CommSec
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