• Home prices: The CoreLogic Home Value Index of national home prices fell by 0.6 per cent in March – the smallest decline since October – to be down 6.9 per cent over the year. Prices fell in all capital cities except Hobart (up 0.6 per cent) and Canberra (flat). Regional prices fell by 0.4 per cent.
• Shares outperform residential property: Total returns on national dwellings fell by 3.3 per cent in the year to March – the worst return in a decade – with houses down by 4.0 per cent on a year earlier and units down by 1.6 per cent. In contrast, the S&P/ASX All Ordinaries Accumulation Index lifted by 11.3 per cent over the year to March – the strongest annual growth rate since September.
• Manufacturing sector: The Australian Industry Group Australian Performance of Manufacturing Index fell by 3.0 points to 51.0 points in March. The ‘final’ CBA Manufacturing Purchasing Managers’ Index (PMI) declined by 0.9 points to 52.0 points. Any reading over 50 indicates expansion.

Home price data is important for retailers, especially those focussed on consumer durables. The manufacturing data provides guidance for companies in the Industrials sector.

What does it all mean?

• The property downturn drove the biggest decline (-2.1 per cent) in Aussie household wealth in seven years in the December quarter, according to the Bureau of Statistics. But the Aussie sharemarket (S&P/ASX200 index) rose by 9.5 per cent in the March quarter, its best quarterly performance since September 2009.
• If you include dividends, the S&P/ASX All Ordinaries Accumulation Index increased by 11.3 per cent over the year to March, outperforming total returns on national dwellings, which posted the weakest annual return since January 2009, down by 3.3 per cent in March.
• While there will be some anxiety around the possible impact of slowing home prices on household spending and the ‘wealth effect’, the rebound in sharemarkets so far in 2019 could potentially support consumer sentiment.
• National home prices continued to decline in March, albeit at the slowest rate since October last year.
• Of course, some cities and regional towns are ‘bucking the trend’. Home prices in Hobart, for example, lifted by 0.6 per cent in March. Home prices are continuing to rise in Adelaide, Hobart and Canberra. And some regional towns and cities are continuing to perform well, such as Launceston (up 6.9 per cent), Ballarat (up 6.6 per cent), Latrobe – Gippsland (up 6.2 per cent), NSW Riverina (up 5.5 per cent) and Coffs Harbour-Grafton (up 3.5 per cent).
• Australia’s manufacturing sector continues to expand albeit at a slower pace. The AiGroup reported that new orders fell because “customers are delaying orders until after the Federal election.” However, “the lower Australian dollar helping to stabilise exports.” The Commonwealth Bank said, “Tight supply also contributed to higher prices. Input cost inflation was solid, while firms raised output charges at the fastest pace in five months. Price hikes from distributors and greater costs for commodities such as wool, vegetables and fuel were commonly mentioned as reasons for inflation.”

What do the figures show?

Home prices

• The CoreLogic Home Value Index of national home prices fell by 0.6 per cent in March – the smallest decline since October – to be down 6.9 per cent over the year. Prices fell in all capital cities except Hobart (up 0.6 per cent) and Canberra (flat). Regional prices fell by 0.4 per cent (down 2.1 per cent on the year).
• In capital cities, prices fell 0.7 per cent to be down 8.2 per cent over the year to March. House prices fell by 0.7 per cent and apartment prices also fell by 0.7 per cent. House prices were down 8.9 per cent on a year ago and apartments were down by 6.3 per cent.
• In regional areas, house prices fell by 0.4 per cent and apartment prices fell 0.6 per cent in March to be down 2.3 per cent and 1.4 per cent respectively on the year.
• The average Australian capital city house price (median price) was $634,024 in March and the average unit price was $529,643.
• Dwelling prices fell in six of the eight capital cities in March. Home prices fell in Sydney (down 0.9 per cent), from Melbourne (down 0.8 per cent), Brisbane and Darwin (both down 0.6 per cent), Perth (down 0.4 per cent) and Adelaide (down 0.2 per cent). Prices rose in Hobart (up 0.6 per cent) and were flat in Canberra.
• Home prices were lower than a year ago in five of the eight capital cities in March. Prices fell by the most in Sydney (down 10.9 per cent); Melbourne (down 9.8 per cent); Perth (down 7.7 per cent); Darwin (down by 6.8 per cent) and Brisbane (down 1.3 per cent). But prices are still positive in Hobart (up 6.0 per cent), Canberra (up 3.1 per cent) and Adelaide (up 0.8 per cent).
• Total returns on national dwellings fell by 3.3 per cent in the year to March with houses down by 4.0 per cent on a year earlier and units were down by 1.6 per cent. In contrast, the S&P/ASX All Ordinaries Accumulation Index lifted by 11.3 per cent over the year to March – the strongest annual growth rate since September.

Manufacturing Purchasing Managers’ Indexes

•  The Australian Industry Group (AiGroup) Australian Performance of Manufacturing Index fell by 3.0 points to 51.0 points in March. The CBA Manufacturing Purchasing Managers’ Index (PMI) declined by 0.9 points to 52.0 points. Any reading over 50 indicates expansion.
• According to AiGroup, “Some respondents attributed this [slower pace of expansion] to a general slowing in the economy while others said their customers are delaying orders until after the Federal election. The downturn in local housing construction is affecting demand for building-related manufactured goods. More positively, manufacturers in the ‘textiles, clothing, footwear, paper and printing’ and ‘food and beverages’ sectors reported higher than usual demand for this time of year, with the lower Australian dollar helping to stabilise exports.”
• According to CBA/Markit, “Australia’s manufacturing sector ended the first quarter on a positive note, but growth was the softest seen since July 2016. A slower expansion in output and lower employment weighed on the headline index. Backlog accumulation was marginal while the rise in purchasing activity was modest. Meanwhile, inflationary pressure persisted, with solid increases seen in both input prices and output charges. Business confidence remained positive.”

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 AiGroup and CBA Purchasing Manager indexes (PMIs) for services and manufacturing are released each month. The Australian PMIs are the local equivalents of similar indexes released for other countries. The PMIs are amongst timeliest economic indicators released in Australia. The PMIs are useful not just in showing how the sectors are performing but in providing some sense about where they are heading. The key ‘forward looking’ components are orders and employment.

What are the implications for interest rates and investors?

• The housing market continues to rebalance. Home prices declined in March, but the rate of deceleration in prices was the slowest in five months. That said, the decline in prices has spilled over into more regional cities, towns and suburbs.
• ‘Final’ estimates of weekly auction clearance rates in Sydney are now around 50-55 per cent, implying a tentative stabilisation in prices. But Sydney and Melbourne home prices are still down 13.9 per cent and 10.3 per cent, respectively from their most recent peaks in 2017.
• Tighter lending standards, specifically the availability of credit, is weighing on demand for home loans. Investor demand is also waning due to falling property prices and increased stamp duty for foreign buyers. Listings of homes for sale has increased. But prospective buyers may also be dissuaded from purchasing properties due to political uncertainty around the Labor Party’s proposed negative gearing policy and the upcoming Federal election.
• First home buyers and renters are the ‘winners’ from the property downturn. Capital city rents are down by 0.1 per cent over the year to March, led by Sydney (down 3.1 per cent).
• With household disposable incomes under pressure and mortgage debt still elevated, Reserve Bank policymakers will hope that the upturn in sharemarkets continues, ‘cushioning the blow’ from the negative wealth effect of falling home prices.
• Consumer spending, proposed Federal Budget tax cuts and the strength of the labour market will determine the future direction of interest rates.
• CommSec doesn’t expect a change in the official cash rate in the foreseeable future. All eyes will be on the Reserve Bank’s monetary policy statement tomorrow to see whether an explicit easing bias is inserted into the commentary.

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