Fastest growth in apartment prices in 4 years – Food and beverages demand lifts Aussie manufacturing

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Home prices; Manufacturing

  • Home prices: The CoreLogic Home Value Index of national home prices rose by 0.7 per cent in March to be up 7.5 per cent on the year. Capital city home prices also rose by 0.7 per cent (up 8.9 per cent on the year). House and apartment prices rose by 0.7 per cent. House prices were up 9.1 per cent on a year ago and prices of apartments increased by 8.3 per cent – the strongest annual growth rate in over 4 years.
  • Regional results: Regional home prices rose by 0.6 per cent (up by 2.4 per cent on the year). Of the 88 SA4 regions across Australia, home prices were up on a year ago in 69 regions in March (66 in February).
  • Manufacturing sector: The AiGroup’s Performance of Manufacturing Index rose by 9.4 points to 53.7 points in March – the first expansion in activity in 4 months. The Food & Beverages sub-index remained elevated at 59.0 points – well above the long-run average of 53.6 points. But the ‘final’ CBA/IHS Markit Manufacturing Purchasing Managers’ Index fell by 0.5 points to 49.7 points in March. Any reading below 50 indicates a contraction in activity.

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 Aussie housing market was in good shape until the coronavirus disruptions began to take their toll on home prices from mid-March. And by disruptions, included are the restrictions on ‘open for inspections’ and public bans on auctions. In fact, with growing uncertainty around the economy and jobs – along with greater social distancing enforcement – home prices noticeably eased in Melbourne from March 16, down by 0.1 per cent. Home price growth in Sydney (up 0.3 per cent) and Brisbane (up 0.1 per cent) also decelerated in the second half of March following solid gains of 0.7 per cent (Sydney) and 0.5 per cent (Brisbane) respectively earlier in the month.
  • Aussie real estate professionals have indicated that the property market will likely lose momentum as we approach winter. CoreLogic surveyed 411 real estate agents, managers and principals between March 20 and March 22 with respondents advising that buyer enquiries had dropped significantly. In fact, 34 per cent of respondents had seen 50 per cent or greater declines in buying interest. Around a third of respondents reported that selling enquiries decreased by 50 per cent or more. And the national auction clearance rates dropped sharply last weekend – particularly in Sydney and Melbourne as buyer demand weakened and sellers withdrew their homes for sale.
  • But it’s not all bad news. Capital city home price appreciation has been strong, supported by record low mortgage rates and solid first home buyer demand. In fact, the annual growth rate in apartment prices was the strongest in over four years in March at 8.3 per cent.

What do the figures show?

Home prices

  • The CoreLogic Home Value Index of national home prices rose by 0.7 per cent in March to stand 7.5 per cent higher over the year – the strongest annual growth rate in 2½ years.
  • In capital cities, prices rose by 0.7 per cent to be up 8.9 per cent over the year to March – also the strongest annual growth rate in 2½ years. House prices rose by 0.7 per cent and apartment prices also lifted by 0.7 per cent. House prices were up 9.1 per cent on a year ago and prices of apartments increased by 8.3 per cent – the strongest annual growth rate in over 4 years.
  • In regional areas, home prices rose by 0.6 per cent with houses up 0.6 per cent and apartment prices up by 0.4 per cent. Regional home prices were up 2.4 per cent on the year to March.
  • The average Australian capital city house price (median price) was $676,067 and the average unit price was $582,506 in March.
  • Home prices were higher in seven of the eight capital cities in March. Home prices rose by the most in Darwin (up by 2.0 per cent), followed by Sydney (up by 1.1 per cent), Brisbane and Canberra (both up 0.6 per cent), Perth (up by 0.5 per cent), Melbourne (up by 0.4 per cent) and Adelaide (up by 0.3 per cent). But Hobart prices fell by 0.2 per cent.
  • Home prices were higher than a year ago in six of the eight capital cities in March. Prices rose the most in Sydney (up by 13.0 per cent), followed by Melbourne (up by 12.0 per cent), Canberra (up by 4.7 per cent), Hobart (up by 4.2 per cent), Brisbane (up by 3.1 per cent) and Adelaide (up by 0.9 per cent). But prices were down in Darwin (down by 5.4 per cent) and Perth (down by 3.1 per cent).
  • Total returns on national dwellings rose by 11.6 per cent in the year to March with houses up by 11.4 per cent on a year earlier and units up by 12.0 per cent. In contrast, the S&P/ASX All Ordinaries Accumulation Index fell by 15.0 per cent over the year to March.

Manufacturing Purchasing Managers’ indexes – March

  • The AiGroup’s Performance of Manufacturing Index rose by 9.4 points to 53.7 points in March – the first expansion in activity in 4 months. Any reading above 50 indicates an expansion in activity.
  • The increase was driven by stronger new orders (up 16.2 points to 57.9 points), a lift in sales (up 13.4 points to 56.5 points) and an 11.4 points increase in production to 51.8 points. Encouragingly, employment rose by 6.9 points to 56.0 points – well above the long run average of 48.9 points since 2001.
  • The AiGroup said, “The largest Australian manufacturing sector – food & beverages – rebounded into expansion (on a seasonally adjusted and trend basis) due to households stockpiling in anticipation of activity restrictions and perceived supply disruptions due to the COVID-19 pandemic. The chemicals sector experienced a spike in demand due to a huge surge in sales of pharmaceuticals, toiletries and health supplements.”
  • And, “The sharp spike in the Australian PMI® sales, production and new orders indices was almost wholly experienced in the food and beverages sector. Elsewhere, the ‘heavy’ manufacturing sectors (equipment, machinery, metals) reported significant supply chain disruptions and tumbling export orders due to global factory and freight disruptions as a result of the COVID-19 pandemic. Increased lead times and prices for air freight are affecting importers and exporters.”
  • The ‘final’ CBA/IHS Markit Manufacturing Purchasing Managers’ Index fell by 0.5 points to 49.7 points in March. Any reading below 50 indicates a contraction in activity.
  • According to CBA/IHS Markit, “Australian manufacturing conditions deteriorated in March, led by record falls in output and new orders as COVID-19 hit the economy. Reports of production halts saw firms cut back on hiring, purchasing activity and inventories. Business confidence fell to the lowest on record. Supply chains came under great pressure amid import restrictions and other anti-virus measures. Supply shortages and a weaker Australian dollar led to a surge in input costs, accompanied by a rise in selling prices.”

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 latest Aussie manufacturing activity indicators were mixed. But the AiGroup factory activity measure expanded for the first time in four months, despite the escalating virus pandemic and increasing likelihood of a sharp economic downturn. Surging consumer demand for manufactured food, groceries and personal care items kept Aussie factories and manufacturers busy in March.
  • The housing market has been a bright spot for the Aussie economy. But with the onset of coronavirus pandemic and the restrictive measures put in place to try and contain the virus, budding Aussie property buyers have become increasingly cautious about upgrading or purchasing their first new home.
  • Worries about job security, business shutdowns, virus lockdowns and weak consumer confidence are all set to weigh on demand for property in the near term. Home price growth will likely moderate. That said, the Federal government’s announced JobKeeper wage subsidies and mortgage deferral policies – along with ultra-low interest rates and a potential lift in expat demand due to the weak Aussie dollar – should provide some support for the housing market.

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