Home Value Index; Producer Prices; Performance of Manufacturing
Home prices lift: The CoreLogic RP Data Home Value Index of capital city home prices rose by 0.8 per cent in April to stand 7.9 per cent higher over the year.
Total returns on capital city dwellings in the year to April rose by 12.2 per cent with houses up 12.4 per cent on a year earlier and units up 10.5 per cent.
The broad measure of business inflation – the producer price index (PPI), or final stage prices, rose by 0.5 per cent in the March quarter to stand 0.7 per cent higher than a year ago.
Business margins improve: The difference between final stage and preliminary producer inflation was 3.0 percentage points in annual terms – the third consecutive quarter of margin expansion and the strongest result in seven years.
The Performance of Manufacturing index rose by 1.8 points to 48.0 in April. A reading below 50.0 indicates that the sector is contracting.
What does it all mean?
Across the nation home prices are looking healthy. And even more encourginly the gains were spread across the states, rather than being just Sydney. Seven of the eight capital cities recored growth with Hobart and Adelaide driving the gains. But there is still a long wat to go. In fact if you take out the capital cities and look at the “Rest of State” index, home prices are up only 1.5 per cent over the past year. This highlights the issues facing policymakers in attempting to manage a very diverse housing market. What we would expect to see is the lift in capital city house prices eventually filters out across the regional towns over the next 12-24 months. Strength in home prices across the nation will be more supportive of a lift in activity levels over the medium term.
There is no question that the Sydney housing market continues to be of key focus to policymakers, with home prices up 14.5 per cent over the year. And while the ongoing lift in Sydney home prices looks excessive, it is likely to cool as new housing supply comes into the market. In addition further measures by APRA to curtail property speculation will ensure more modest price growth over the coming year.
The ongoing strength in home prices is largely due to a lack of stock available for sale. At the same time there is no question that 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 almost 19 per cent over the past year, with over 10 per cent annual gains in Melbourne.
The latest business inflation figures will ensure that policymakers don’t feel threatened by inflation. Domestic price pressures are well contained. In fact prices of domestic goods rose by just 0.2 per cent, while imported goods rose by 2.8 per cent in the March quarter – largely due to the slide in the Australian dollar.
Interestingly, the data also confirms the more upbeat trading conditions being faced by businesses. The difference between final stage and preliminary producer inflation was 3.0 percentage points in annual terms – the third consecutive quarter of margin expansion and the best result in seven years.
The latest manufacturing reading was mildly encouraging, but it still has a long way to go. The headline reading recorded a smaller contraction. The disappointment amongst key subindices would have to be the slide in exports. The worst may be behind for the sector, but the fall in the Aussie dollar is still not having the desired impact on exports.
The Reserve Bank Board has a very difficult decision at the interest rate setting meeting next week. Home prices continue to post healthy gains. But activity in the manufacturing sector remains soft while businesses generally are reluctant to step up spending. And the recent lift in the Australian dollar would be concerning.
Certainly there are few risks with cutting rates again, but it gets down to a tactical decision. When is the best time to cut rates? Are rate cuts losing their effectiveness? Do we risk using up all our ammunition by cutting rates now? There are no right or wrong answers, just a strategic decision by the Board. Understandably financial markets and economists are split on the likelihood of rate cut next week.
What do the figures show?
Home prices
The CoreLogic RP Data Hedonic Australian Home Value index of capital city home prices rose by 0.8 per cent in April after lifting by 1.4 per cent in March. Home prices are up by 7.9 per cent on a year ago, after recording 7.4 per cent annual growth to March.
House prices rose by 1.1 per cent in April while apartments fell by 1.0 per cent. House prices were up 8.3 per cent on a year ago and apartments were up by 5.6 per cent.
The average Australian capital city house price (median price based on settled sales over quarter) was $591,000 and the average unit price was $499,000.
Dwelling prices fell in just one of the eight capital cities in April: Canberra (down 1.5 per cent). Prices rose in Hobart (up 1.6 per cent), Adelaide (up 1.6 per cent), Sydney (up 1.0 per cent); Melbourne (up 0.8 per cent), Brisbane and Perth (both up 0.6 per cent) and Darwin (up 0.3 per cent);.
Home prices were higher than a year ago in seven of the eight capital cities. Prices rose most in Sydney (up 14.5 per cent), followed by Melbourne (up 6.9 per cent), Brisbane (up 2.2 per cent), Adelaide (up 1.7 per cent), Hobart (up 1.2 per cent), Canberra (up 1.1 per cent) and Perth (up 0.3 per cent). Price fell in only Darwin (down 1.6 per cent).
Total returns on capital city dwellings in the year to April rose by 12.2 per cent with houses up 12.4 per cent on a year earlier and units up 10.5 per cent.
RP Data report: “Over the past twelve months weekly rents have increased by 1.7 per cent across the capital cities, with weekly rents falling in Perth, Canberra and Darwin over the past year. The highest rental growth can be found in Sydney, where weekly rents are 3.3 per cent higher over the year.
“According to the results, virtually every capital city is seeing rental rates rising at a substantially slower pace than dwelling values which is causing severe yield compression in some cities. The low yield scenario is most evident in Melbourne where the typical house is attracting a gross yield of just 3.2 per cent. Sydney isn’t far behind with the average gross yield on a house now 3.4 per cent. Darwin remains the highest yielding city, with an average gross yield of 5.7 per cent for local houses, while Hobart yields have actually improved to be the second highest of any capital city at 5.3 per cent gross”.
Producer prices
The Producer Price Index (PPI), or final stage prices, rose by 0.5 per cent in the March quarter to stand just 0.7 per cent higher than a year ago. Of final stage prices, domestic good prices rose by 0.2 per cent while import good prices rose by 2.8 per cent in the quarter.
· The Bureau of Statistics notes that the 0.5 per cent lift in final stage prices was “mainly due to rises in the prices received for building construction (+0.6 per cent), other transport equipment manufacturing (+5.8 per cent) and computer and electronic equipment manufacturing (+5.5 per cent)” and was “partly offset by falls in the prices received for petroleum refining and petroleum fuel manufacturing (-11.7 per cent)”.
· Prices of intermediate goods fell by 0.3 per cent in the quarter to stand 1.0 per cent lower over the year. Preliminary stage materials fell by 0.8 per cent in the quarter to be 2.3 per cent lower than a year ago.
Performance of Manufacturing
The Performance of Manufacturing index rose by 1.8 points to 48.0 in April. A reading below 50.0 indicates that the sector is contracting.
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 producer price figures are important in flagging price pressures at an early stage. If business costs are rising, the risk is that these will be passed on in terms of higher prices of final consumer goods. The Consumer Price Index is regarded as the key gauge of economy-wide inflation.
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?
A rate cut is a ‘live’ option at every Reserve Bank Board meeting over the next few months. It is a question or art rather than science when RBA Board members feel it is the right time to move.
Financial market pricing suggests that a rate cut is a 62 per cent chance at next week’s Reserve Bank Board meeting.
The strength of the housing market will clearly feature at the Reserve Bank Board meeting. A big question for the Reserve Bank is whether another rate cut add to risks of a bubble developing in the housing market? Home prices are at record highs across Australia and annual price growth of 8 per cent remains well above the long-term average growth rate of 4.8 per cent.
CommSec expects the Reserve Bank to cut rates on Tuesday. A Bloomberg poll indicates that 23 of 27 economists tip a rate cut.
Introduction Why do financially secure retirees still hesitate to spend, or commit to strategies that would clearly improve their outcomes? This article sets out the Two-Chapter Retirement framework, a new [...]
China’s economic trajectory is shifting, but not in the way many had once expected. Consumption-led rebalancing has not materialised. Instead, economic policy continues to emphasise industrial modernisation, aligned with a [...]
In financial advice, acting in a client’s best interest isn’t just a regulatory rule, it’s the foundation of a trusting, successful partnership. This article, proudly sponsored by GSFM, examines the [...]
Few themes rival the scale, urgency and long-term significance of climate change. Consequently, regions, countries, companies and individuals are taking positive action to decarbonise the planet and work toward net [...]
Introduction In February 2026, the Australian Financial Complaints Authority (AFCA), reached a significant milestone when it issued its 1,000th Dixon Advisory determination[1]. Up until that point, this represented the single [...]
