First fall in Sydney and Melbourne home prices in 18 months

Home prices; Manufacturing purchasing managers surveys

• The CoreLogic Home Value Index of national home prices rose by 0.7 per cent in March. Home prices are up 18.2 per cent over the year. Capital city home prices lifted 0.3 per cent in March, the equal slowest pace since October 2020. Regional home prices lifted 1.7 per cent with growth strongest in South Australia (up 2.8 per cent).
• Across the regions, 74 out of the 88 SA4 regions recorded higher home prices in March. Home prices rose by the most in South Australia – South East (up 3.2 per cent), followed by Southern Highlands, NSW and Barossa – Yorke – Mid North, South Australia (both up 3.0 per cent). But home prices fell 1.7 per cent in Sydney – Northern Beaches, NSW and 1.4 per cent in Sydney – Eastern Suburbs, NSW.
• The AiGroup Australian Performance of Manufacturing Index (PMI) for manufacturing rose by 2.5 points to 55.7 in March. And the final IHS Markit Australia Manufacturing PMI lifted from 57.0 to 57.7 in March. Readings over 50 denote an expansion in activity.

What does it all mean?

• The pace of Aussie home price growth continues to moderate with the CoreLogic Home Value Index up by 0.7 per cent in March. Capital city home prices rose by just 0.3 per cent in the month – the equal slowest pace in 17 months (since October 2020). But regional home prices are outperforming, up by 1.7 per cent in March, with strong growth recorded in South Australia (up 2.8 per cent), Queensland (up 2.0 per cent) and NSW (up 1.8 per cent). In fact, across the regions, 74 out of the 88 SA4 Aussie regions recorded higher home prices in March.
• The divergence in home prices is most evident in the capital cities, with the largest by population – Sydney (down 0.2 per cent) and Melbourne (down 0.1 per cent) – both experiencing falls in prices for the first time together since September 2020. Of course, both cities dominate price declines at an SA4 level: Sydney – Northern Beaches (down 1.7 per cent); Sydney – Eastern Suburbs (down 1.4 per cent); Sydney – City and Inner South (down 1.0 per cent); Melbourne – Outer East (down 0.7 per cent); and Melbourne – North East (down 0.6 per cent).
• But Australia’s property market continues to diverge, with home prices in both Brisbane and Adelaide outpacing the national average. Brisbane home prices rose by 2.0 per cent in the month to be up by a whopping 29.3 per cent over the year to March. Brisbane’s outer suburban regions continue to outperform, due to better relative affordability, with SA4 regions Moreton Bay – North (up 2.9 per cent) Ipswich (up 2.9 per cent) and Logan – Beaudesert (up 2.7 per cent) amongst Australia’s best performing housing markets in March.
• And Adelaide home prices were up 1.9 per cent in March to be 26.3 per cent higher than a year ago – the most since the CoreLogic records began in January 1993. At a regional SA4 level, South Australia – South East (up 3.2 per cent) and Barossa – Yorke – Mid North (up 3.0 per cent) were very strong regional performers in March.
• Record low interest rates, elevated household savings, strong interstate migration, better relative affordability, limited detached housing supply, fewer Covid disruptions, solid government infrastructure spending and a tight rental market are all supporting home price appreciation in both Brisbane and Adelaide.
• Over 2022, the divergence in home prices between detached houses and other dwellings, such as apartments and townhouses, could narrow amid affordability constraints, an expected worker return to offices in CBDs, and the return of international students and skilled migrants.
• The take-up of fixed mortgages at record low rates during the pandemic is expected to cushion the blow for some homeowners from an expected lift in borrowing costs. But demand for new home loans could ease as fixed home loan rates are adjusted upwards on growing expectations of official cash rate rise in June 2022.
• And regulators will continue to keep a close eye on the pace of both new home lending and the stock of credit, as well as lending at high debt-to-income ratios and loan-to-valuation ratios, which combined are expected to slow housing credit growth. Home loan servicing buffers have already been increased with additional macroprudential tightening likely.
• In the near-term, homebuyers, investors and sellers should be on the lookout for signs of property market weakness. Areas to watch include weaker auction clearance rates; higher advertised stock levels; a lengthening in days a home is advertised on the market; and increased levels of home price discounting. Already, CoreLogic have reported, “National housing turnover is also easing, with preliminary transaction estimates for the March quarter tracking 14.3 per cent lower than the same period in 2021.”
• On the rental market, CoreLogic reported that the quarterly pace of national rents growth picked up to 2.6 per cent in the March quarter, driven by seasonal factors, with the annual growth rate easing to 8.7 per cent. Rental growth was firmer for apartments (up 3.0 per cent) when compared to houses (up 2.4 per cent) over the March quarter.
• For investors, total returns on national dwellings rose by 21.3 per cent in the year to March, easily outperforming the S&P/ASX All Ordinaries Accumulation Index, which advanced 15.5 per cent.

What do you need to know?

Home prices – March

• The CoreLogic Home Value Index of national home prices rose by 0.7 per cent in March. Home prices are up 18.2 per cent higher over the year.
• Across all capital cities, home prices lifted by 0.3 per cent – the equal slowest pace in 17 months – to be up 16.3 per cent over the year to March.
• National house prices climbed 0.8 per cent and apartment prices rose by 0.3 per cent – the equal slowest pace for units in 14 months. House prices were up 20.2 per cent on a year ago and apartment prices climbed 11.4 per cent.
• Home prices were up in six out of eight capital cities in March: Sydney (-0.2 per cent); Melbourne (-0.1 per cent); Brisbane (+2.0 per cent); Adelaide (+1.9 per cent); Perth (+1.0 per cent); Hobart (+0.3 per cent); Darwin (+0.8 per cent); and Canberra (+1.0 per cent).
• Home prices were higher than a year ago in all eight capital cities in March: Sydney (+17.7 per cent); Melbourne (+9.8 per cent); Brisbane (+29.3 per cent); Adelaide (+26.3 per cent); Perth (+7.0 per cent); Hobart (+22.3 per cent); Darwin (+10.6 per cent); and Canberra (+21.6 per cent).
• Regional home prices advanced 1.7 per cent to be up 24.5 per cent on the year. House prices also lifted 1.7 per cent to be up 24.8 per cent on the year. Unit prices rose 1.7 per cent in the month to be up 22.9 per cent on the year.
• Total returns on national dwellings rose by 21.3 per cent in the year to March, outperforming the S&P/ASX All Ordinaries Accumulation Index, which advanced 15.5 per cent.

Purchasing Managers’ indexes (PMIs) – March

• The AiGroup Australian Performance of Manufacturing Index (PMI) for manufacturing rose by 2.5 points to 55.7 in March. Readings over 50 denote an expansion in activity.
• According to the AiGroup, “Five of the six manufacturing sectors included in the Australian PMI reported positive trading conditions (results over 50 points, seasonally adjusted) during March, with buoyant conditions reported by manufacturers in the machinery & equipment, building materials, and TCF, paper & printing products sectors. The large food & beverage sector remained in contraction in March.”
• And the final IHS Markit Australia Manufacturing PMI lifted from 57.0 to 57.7 in March. IHS Markit economists noted that, “Manufacturing sector growth improved in March according to the latest S&P Global Australia Manufacturing PMI, supported by robust demand conditions. Despite a renewed rise in COVID-19 cases and domestic flooding disruptions, manufacturing production remained resilient.
• That said, supply constraints became more profound in March with the deterioration in vendor performance and both manpower and input shortages reported. The negative consequences of the Ukraine war also showed up across both price and delivery times indicators.
• Supply issues may also be further aggravated going forward with interests amongst manufacturers to build safety stock, which is a trend worth watching. Overall sentiment remained positive, but sunk to the lowest since July 2021.”