• The strength in property prices has been phenomenal. After essentially going nowhere for two years, home prices have lifted for virtually the past ten months. And the 2.3 per cent lift in March was the strongest monthly gain in records going back over 18 years. In addition, all capital cities recorded a lift in property values – highlighting the underlying strength in residential property.
• Total returns on capital city dwellings are 15.2 per cent higher than a year ago.
• The pent up demand for housing, low vacancy rates and strong rental yields have increased the attractiveness of property as an investment class. In addition substantial cuts to interest rates continue to drive activity. In Sydney, total returns (capital appreciation plus rental yields) on homes have lifted by over 20 per cent over the past year.
• In recent weeks the Reserve Bank seems to be paying more attention to the ongoing lift in house prices. The Governor attempted to caution home buyers when he delivered a speech in Hong Kong last week. The last thing regulators and policymakers want to see is over-leveraged home buyers in an environment where rates have bottomed out and likely to rise in time.
• While the discussion of a housing bubble will continue to dominate media headlines, it is likely that increases in land sales, building approvals and new home sales will result in a greater supply of homes over 2014. And, as a result of increased home supply, price gains will become more restrained later in the year
• The domestic manufacturing sector has continued to struggle and given the recent lift in the Australian dollar it is unlikely to any significant improvement in coming months. Exports are still contract although at a slower pace. The one positive has to be the lift in new orders which are expanding at the fastest pace in five month.
• The Reserve Bank looks set to remain on the interest rate sidelines over the next few months. Overall inflation is likely to lift mildly over the coming year, but remain within the Central Bank’s 2-3 per cent target band. And in light of an ongoing improvement in economic activity we expect the Reserve Bank looks set to remain on the interest rate sidelines over the next few months.

What do the figures show?

House price prices

• The RP Data-Rismark Hedonic Australian Home Value index of capital city home prices rose by 2.3 per cent in March to be up 3.5 per cent in the March quarter. Home prices are up 10.6 per cent on a year ago.
• House prices rose by 2.4 per cent in March while apartments rose by 1.6 per cent. House prices are up 10.7 per cent on a year ago and apartments are up 9.4 per cent.
• The average Australian capital city house price (median price based on settled sales over quarter) was $535,000 and the average unit price was $451,500.
• Dwelling prices rose in all eight capital cities in March: Darwin (up 3.3 per cent), followed by Brisbane (up 2.9 per cent), Sydney (up 2.8 per cent), Melbourne (up 2.3 per cent), Canberra (up 2.2 per cent), Adelaide (up 1.4 per cent), Hobart (up 1.2 per cent), and Perth (up 0.6 per cent).
• Home prices are higher than a year ago across all capital cities. Prices rose most in Sydney (up 15.6 per cent), followed by Melbourne (up 11.6 per cent), Brisbane (up 4.8 per cent), Perth (up 4.7 per cent), Adelaide (up 4.6 per cent), Canberra (up 1.7 per cent) and Hobart (up 0.9 per cent).
• Total returns on capital city houses were up 15.3 per cent on a year earlier and units were up 14.8 per cent.

Performance of Manufacturing

• The Performance of Manufacturing index fell by 0.7 points to 47.9 points in March. A reading below 50.0 indicates that the sector is contracting.
• Of the components, production fell from 51.5 to 49.2; new orders rose from 50.0 to 52.3; employment fell from 47.4 to 45.0; and exports orders rose from 25.8 to 31.1.
• The RP Data-Rismark 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 RP Data-Rismark 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 Reserve Bank would be justifiably content with the way the domestic economy is panning out. There is nothing to suggest that official interest rates need to budge from current levels. However if policymakers had a wish list, first pick would be for slower, more sedate growth in home prices.
• CommSec expects no change in rates over the medium term, with the first rate hike towards the end of 2014.

What is the importance of the economic data?

• The RP Data-Rismark 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 RP Data-Rismark 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.

What are the implications for interest rates and investors?

• The Reserve Bank would be justifiably content with the way the domestic economy is panning out. There is nothing to suggest that official interest rates need to budge from current levels. However if policymakers had a wish list, first pick would be for slower, more sedate growth in home prices.
• CommSec expects no change in rates over the medium term, with the first rate hike towards the end of 2014.