Home sales hit 29-year lows – accommodation costs fall the most in 18 years

Home sales hit 29-year lows

Accommodation costs fall the most in 18 years

• Home prices; Producer prices; Manufacturing; COVID-19 impact on households
• Home prices: The CoreLogic Home Value Index of national home prices rose by 0.3 per cent in April – the weakest increase in 9 months to be up 8.3 per cent on the year. Capital city home prices rose by 0.2 per cent – also the weakest lift in 9 months (up 9.7 per cent on the year). Regional home prices rose by 0.5 per cent (up 3.2 per cent on the year). Melbourne home prices (-0.3 per cent) fell for the first time in 11 months.
• Home sales plunge: In April, estimates of settled home sales fell by 39.2 per cent to 29-year lows of 21,404.
• Business inflation: The “final demand” component of producer prices (business inflation) rose by 0.2 per cent in the March quarter to stand 1.3 per cent higher than a year ago – the weakest annual growth rate in 3 years. Accommodation services costs fell by 6.4 per cent – the biggest annual decline in 18 years.
• COVID-19 impact on Australian households: According to the Bureau of Statistics (ABS), “Nearly half (45 per cent) of Australians aged 18 years and over had their household finances impacted by COVID-19 in the period mid-March to mid-April. And one in 13 Australians (7.5 per cent) said their household lacked the money to pay one or more bills on time, and one in ten (10 per cent) had to draw on accumulated savings to support basic living expenses.”
• Manufacturing sector: The AiGroup’s Performance of Manufacturing Index fell by 17.9 points – the most on record – to an 11-year low of 35.8 points in April. And the ‘final’ CBA/IHS Markit Manufacturing Purchasing Managers’ Index fell by 5.6 points to a record low 44.1 points in April. Any reading below 50 indicates a contraction in activity.

Home price data is important for retailers, especially those focussed on consumer durables. The data on producer prices shows price pressures being faced by Australian businesses. The manufacturing data provides guidance for companies in the Industrials sector.

What does it all mean?

• The growth of Aussie home prices has slowed. Price gains were the weakest in nine months and Melbourne home prices fell for the first time in 11 months in April. But property values held up in most capital cities as the major banks offered mortgage repayment holidays with some homeowners confronted with mortgage and financial stress due to the coronavirus (COVID-19) economic shutdown.
• Housing market activity has been affected by COVID-19 disruptions, including restrictions on ‘open for inspections’ and bans on in-person auctions.
• In fact, the impact on conditions has shown up in auction clearance rates, home sales and listing volumes. According to CoreLogic, new home listings were down 35 per cent in April from a year ago. And home sales fell by an estimated 39.2 per cent to 29-year lows (lowest since January 1991) of 21,404. Auction clearance rates have also weakened sharply from around 65-75 per cent earlier this year to just 40 per cent last weekend amid rising withdrawal rates.
• But it’s not all bad news. In Darwin, combined home price growth was 3.7 per cent in March and April – the strongest pace in 7 years. And with the Top End reopening for business, home prices could be supported in the near term.
• Aussie business inflationary pressures remain weak. In fact, the annual growth rate of the “final demand” component of producer prices eased to 3-year lows in the March quarter. Price pressures remained broadly subdued across the housing construction and manufacturing sectors. Within the services sector, accommodation services costs fell by 10 per cent in the March quarter and by 6.4 per cent from a year ago – the biggest annual decline in 18 years – due to the ‘twin’ impacts of the devastating bushfires and COVID-19 virus crisis on tourism demand.

What do the figures show?

Home prices

• The CoreLogic Home Value Index of national home prices rose by 0.3 per cent in April – the weakest increase in nine months – to stand 8.3 per cent higher over the year (the strongest annual growth rate in 2½ years.)
• In capital cities, prices rose by 0.2 per cent the weakest in nine months – to be up 9.7 per cent over the year to April (also the strongest annual growth rate in 2½ years). House prices rose by 0.1 per cent in April and apartment prices lifted by 0.4 per cent. House prices were up 9.8 per cent on a year ago and prices of apartments increased by 9.2 per cent – the strongest annual growth rate in 4½ years.
• In regional areas, home prices rose by 0.5 per cent with houses up 0.4 per cent and apartment prices up by 0.8 per cent. Regional home prices were up 3.2 per cent on the year to April.
• The average Australian capital city house price (median price) in April was $680,536 and the average unit price was $585,719.
• Home prices were higher in five of the eight capital cities in April. Home prices rose by the most in Darwin (up by 1.7 per cent), followed by Sydney and Adelaide (both up by 0.4 per cent), Brisbane (up by 0.3 per cent) and Perth (up by 0.2 per cent). Prices were flat in Canberra. But prices fell in Melbourne (down by 0.3 per cent) and Hobart (down by 0.1 per cent).
• Home prices were higher than a year ago in six of the eight capital cities in April. Prices rose the most in Sydney (up by 14.3 per cent), followed by Melbourne (up by 12.4 per cent), Hobart (up by 5.0 per cent), Canberra (up by 4.3 per cent), Brisbane (up by 3.8 per cent) and Adelaide (up by 1.5 per cent). But prices were down in Darwin (down by 2.7 per cent) and Perth (down by 2.5 per cent).
• Total returns on national dwellings rose by 12.3 per cent in the year to April with houses up by 12.1 per cent on a year earlier and units up by 12.9 per cent. In contrast, the S&P/ASX All Ordinaries Accumulation Index fell by 9.2 per cent over the year to April.

Producer prices – March quarter

•  The “final demand” component of producer prices (business inflation) rose by 0.2 per cent in the March quarter to stand at 1.3 per cent higher than a year ago – the weakest annual growth rate in 3 years.
• According to the Australian Bureau of Statistics, the lift in final stage prices (excluding exports) was driven by increases in “other” agriculture (+11.2 per cent), tertiary education (+1.6 per cent) and electricity supply; gas supply; and water supply, sewerage and drainage services (+1.1 per cent).
• Final stage prices increases were partly offset by falls in the prices received for petroleum refining and petroleum fuel manufacturing (-14.1 per cent) and accommodation (-5.6 per cent).
• Manufacturing input prices rose by 1.5 per cent in the quarter due to rising gold, farm gate milk and gelatine prices.
• Manufacturing output prices rose by 0.8 per cent in the quarter due higher gold, beef and sugar prices. Output prices are up 3.2 per cent over the year with inputs up 4.6 per cent.
• Other price changes included:
  • Inputs to the house construction industry were up 0.3 per cent in the quarter; up 0.8 per cent annual;
  • Building construction industry prices were flat in the quarter and up 0.6 per cent annual;
  • Non-residential construction industry prices fell 0.3 per cent in the quarter but were up 0.7 per cent annual;
  • House construction prices rose 0.6 per cent in the quarter to be up 0.4 per cent annual;
  • Apartment construction prices fell 0.4 per cent in the quarter and rose 0.7 per cent on the year;
  • Heavy and civil engineering construction rose 0.2 per cent to be up 1.5 per cent on the year.
• Other notable quarterly changes in the services sector in the March quarter:
  • Motor vehicle and transport equipment rental and hiring (up 3.0 per cent) due to school holiday demand.
  • Postal and courier pick-up and delivery services (up by 1.2 per cent), due to bi-annual price reviews.
  • Accommodation services (down 10.1 per cent), due to reduced demand due to bushfires.

Household Impacts of COVID-19 Survey

The Australian Bureau of Statistics (ABS) has released its second survey that aims to gauge the response by households to the COVID-19 virus.

Broadly, the ABS found over the period mid-March to mid-April:

• Nearly a third of Australians (31 per cent) reported that their household finances had worsened due to COVID-19;
• One in four Australians aged 18 years and over (28 per cent) reported receiving the first one-off $750 economic support payment from the Commonwealth Government; and
• Compared to the 2017-18 National Health Survey almost twice as many adults reported experiencing feelings associated with anxiety, such as nervousness or restlessness, at least some of the time.
• In terms of the job situation the ABS found:
  • “The survey found that 12 per cent of people aged 18 years and over experienced a change in their job situation since the end of March. Of these:
  • 51 per cent said they had a job but were working less hours by mid-April; and
  • 49 per cent said they had some other type of job change, such as working from home, had a job working no paid hours or they had lost their job by mid-April.”
• In terms of the stimulus payment the ABS found:
  • “Persons aged 65 years and over were more likely to have received the first one-off $750 economic support payment than those aged 18 to 64 (60 per cent compared with 19 per cent).
  • Of persons who received the first one-off $750 economic support payment from the Commonwealth Government: 53 per cent said the payment was mainly added to savings or not yet used; and 17 per cent said they mainly used the payment to pay household bills.”
• In terms of household finances:
  • “Nearly a third of Australians (31 per cent) aged 18 years and over reported that their household finances had worsened over the period mid-March to mid-April due to COVID-19, while just over half (55 per cent) reported that their household finances remained unchanged. Persons aged 65 years and over were less likely than persons aged 18 to 64 to have reported that their household finances had worsened (20 per cent compared with 35 per cent).”

Manufacturing Purchasing Managers’ indexes – April

• The AiGroup’s Performance of Manufacturing Index fell by 17.9 points in April – the most on record – to an 11-year low of 35.8 points. Any reading below 50 indicates a contraction in activity.
• The decline in factory activity was broad-based, led by falling new orders (down 25.2 points to 32.7 points), employment (down 21.7 points to 34.3 points) and sales (down 24.9 points to 31.6 points).
• The AiGroup said, “The large food & beverages sector remained positive in April, but fell into contraction, with respondents noting subsiding sales to retailers after the shopper stockpiling in March. Only the chemicals sector improved in April, with continuing strong demand for personal care items (e.g. hand sanitizer), pharmaceuticals, cleaning products, toiletries and health supplements, much of which is made locally.”
• And, “The sharp spike [in the index] in March was more than completely reversed in April, with food & beverage respondents reporting subsiding sales after March’s shopper stockpiling spike. Traditional ‘heavy, industrial manufacturers’ reported retreating conditions in April, as local and export demand for machinery, equipment, building materials and especially metal products evaporates.”
• The ‘final’ CBA/IHS Markit Manufacturing Purchasing Managers’ Index fell by 5.6 points in April to a record low of 44.1 points. Any reading below 50 indicates a contraction in activity.
• According to CBA/IHS Markit, “April saw the worst deterioration in Australian manufacturing conditions in four years of data collection, with output and new orders falling at new record rates as stricter COVID-19 measures weighed on the economy. The downturn in sales led firms to cut back on both purchasing activity and inventories. Hiring was also reduced sharply while business sentiment dropped to a record low. Meanwhile supply chains came under greater pressure, contributing to a sharp rise in input costs.”

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 producer price indexes are measures of business inflation and 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 Bureau of Statistics (ABS) is providing more regular updates on the Coronavirus (COVID-19) impacts on jobs, hours worked, health precautions, hygiene, social distancing, self-isolation, flu vaccination and travel.
• 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?

• After a post-Federal election rebound, Aussie home prices have lost momentum. COVID-19 restrictions have hit activity and new lending has eased, despite attractive lending rates. Expectations are for continuing price declines as demand recedes due to the economic downturn, rising unemployment and reduced inbound migration. But as evidenced by the rebound in sharemarkets in April, investor behaviour is unpredictable. A re-opening of the economy, rising return-to-work rates, ultra-low interest rates and more supportive government policy measures could eventually encourage property buyers back.
• The latest survey on Australian households is encouraging, showing that finances were holding up in the challenging times, underpinned by government support payments. In fact 45 per cent of households said that their financial situation had improved or was unchanged over the period from mid-March to mid-April. Most (81 per cent) said that they could raise $2,000 for something important within a week. And only 8 per cent said that they couldn’t pay one or more selected bills on time.
• It is clear that government payments have provided an important bridge for households to straddle the virus crisis.