Just a minor lift in Aussie dwelling prices.

Australian dwelling prices took a breather in September after posting solid rises over the previous three months.  The small 0.1% increase means that prices are now 18.8% above the May 2012 trough and exceed the previous peak in October 2010 by 10.0%.  Annual growth has eased from a peak of 11.5% in April 2014.

Australia’s two largest cities, Sydney and Melbourne, have been driving the lift in national house prices.  Dwelling prices in Sydney rose by 0.8% in September while they fell by the same amount in Melbourne.  Prices rises in Sydney have shown no sign of slowing and are being fuelled largely by investor interest.  In Melbourne, however, dwelling price momentum has cooled largely in response to a lift in supply.  The forward looking indicators suggest that a lift in supply is forthcoming in Sydney.

Low interest rates and the expectation of future capital gains mean that investors in Australia are currently the major driver of the property market.  Lending to investors has risen substantially over the past year.  One consequence is that rental growth is likely to be weak as the proportion of dwellings available for lease lifts.

Policy makers have been showing increasing signs of concern at the investor driven property price surge.  Last week, the RBA published its semi‑annual Financial Stability Review (FSR) which echoed concerns in the September Board minutes around increased leverage on house price speculation.   The Bank has revealed it is in discussion with APRA and others about what steps “might be taken to reinforce sound lending practices”.  The debate about macroprudential policy has taken off as a result.

The RBA will front the Senate’s economics committee tomorrow for a special hearing on Thursday to explain the risks associated with the housing boom and the potential for macroprudential policy to be introduced.  We will be watching that space closely.

From a rates perspective, the rhetoric from the RBA around house prices has taken any further cuts right off the table and together with other factors will ultimately put rate hikes onto the agenda.

Table 1: RP Data‑Rismark Dwelling* Prices, September 2014

*All dwellings, median price.**Values are for houses only up to August

Click here to read the report.

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Australian weighted average median house price on the increase.

The latest edition of the Bendigo Bank/REIA Real Estate Market Facts Report identifies some interesting trends around Australia that should prove useful for people seeking suitable residential or investment properties across several price points.

Dennis Bice, Executive Retail, Bendigo and Adelaide Bank said “The Australian weighted average median house price is now $617,200 or 13.2% higher when compared with the June quarter 2013.

“In terms of quarterly growth for the East coast capitals, the median house price in Melbourne rose 3.3%, to $658,000 or 16.7% for the year, followed by Sydney with an increase of 3.1% over the June quarter to $811,800 or 17% higher than the figure for the same time last year.

“Brisbane’s median house price increased by 2.2% to $470,000 an increase of 5.6% when compared to the same quarter in 2013.

”Activity wasn’t all confined to the East coast.  In the Adelaide market, more than one thousand sales in the ‘other dwellings’ category saw a 4.9% rise for the quarter”, Mr Bice concluded.

Fast Facts: March quarter 2014

• Quarterly Australian weighted average median house price is $617,232
• Quarterly Australian weighted average median other dwellings price is $496,244

Median house prices up:

• Melbourne 3.3% to $658,000
• Sydney 3.1% to $811,800
• Brisbane 2.2% to $470,000
• Canberra 0.9% to $535,000
• Adelaide 0.8% to $418,150
• Darwin 0.1% to $620,800

Median house prices down:

• Perth 2.7% to $535,000
• Hobart 1.3% to $380,000

Median other dwelling prices up:

• Adelaide 4.9% to $320,000
• Sydney 3.9% to $573,200
• Melbourne 1.9% to $502,000
• Brisbane 1.3% to $390,000
• Perth 0.2% to $449,000

Median other dwelling prices down:

• Hobart 7.9% to $255,000
• Darwin 7.6% to $485,000

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• 

  Business confidence rose in July

  Business conditions and confidence: The NAB business confidence index rose 7.8 points to +11.0 points in July – a 10-month high. The business conditions index improved from +2.5 points to +8.2 points – a four year high. The survey was conducted from July 25 to July 31.

• Exports up: The index of exporters’ sales rose from -1.3 points to a 13-year high of +9.7 points in July (highest since June 2001).
• Consumer confidence falls: The weekly ANZ/Roy Morgan consumer confidence rating fell by 5.7 per cent in the week to July 10. The confidence rating is up 9.3 per cent on the lows recorded for the week to May 25.
• The average credit card balance 2.10 (0.1 per cent) to $3,220.7 in June. The average credit card balance was down 0.7 per cent on a year ago.
• House prices: The ABS measure of home prices rose by 1.8 per cent in the June quarter to be up 10.1 per cent over the past year. The average price of a residential home (houses and units) across Australia is $554,800.

What does it all mean?

• Over the past couple of months the business sector has been more upbeat than consumers on the outlook for the Aussie economy. And the latest results suggest a further improvement in cautious optimism, particularly when it comes to the trading environment. In July, business conditions lifted to the best levels in four years while confidence levels are holding at 10-month highs.
• Interestingly the business confidence readings have not been as volatile as what has been noted by consumers. If anything the business sector shrugged of the negative budget headlines and focussed on the big picture and it seems to be paying dividends. The lift across the sub-indices is particularly encouraging. Profitability has improved and is now holding at the best levels in over four years, while the forward order book has strengthened. In addition the index of exporters’ sales lifted to the best level in 13 years. Not only has the Australian dollar retreated from highs but miners are pumping out product from new and expanded mines. This is the part of the cycle that miners and other related businesses love – the part where investments start to pay off in export sales and increased profits.
• The ongoing lift in conditions is likely to be better news for labour market conditions. As profitability improves we would expect business to increase hours worked and hire additional labour.
• An improvement in labour market conditions would certainly support consumer confidence. The weekly Roy Morgan Consumer Confidence index fell by almost 6 per cent last week, largely as a result of the headline grabbing news of the 6.4 per cent unemployment rate last week – a 12-year high.
• We would expect consumer confidence to rebound in coming months. As the strength in house prices and share markets come to the fore, more Aussies are likely to realise that the economy is in solid shape and interest rates are going nowhere. And more confident consumers should lead to better operating conditions for businesses.
• Overall, the Australian Reserve Bank is in a similar position to the US Federal Reserve. There is no pressing need at present to be tightening monetary policy. But the Australian economy is forming a solid base for future growth and therefore a base for more “normal” interest rates. However it is unlikely that interest rate will be lift anytime this year.
• The Bureau of Statistics has estimated that there were 9,366,800 homes in Australia as at June 2014. Based on the estimated population of 23,533,712 at the time, that equates to 2.512 people per dwelling. Since September 2011 the estimated number of persons per home has lifted from 2.492 people to 2.512 people. If the number of persons per home hadn’t risen, then it is estimated that an extra 78,000 dwellings would have been required.
• If the statistics are correct then Australians have been making greater use of our large dwellings and thus reducing some of the need for extra dwellings

What do the figures show?

National Australia Bank Business Survey:

• The NAB business confidence index rose from +7.8 points to +11.0 points in July – a 10-month high. Thebusiness conditions index improved from +2.5 points to +8.2 points – a four year high.
• The index of trading conditions strengthened from +7.0 points to +13.7 points; employment strengthenedfrom -2.6 points to +0.1 points; profitability strengthened from +3.3 points to +10.2 points; forward ordersimproved from +0.6 points to +5.3 points.
• Inflationary pressures were largely flat in July. The monthly reading of labour costs rose at a 1.0 per cent quarterly rate in July after a 0.7 per cent rise in June. Purchase costs rose at a 0.5 per cent quarterly rate in July, after a 0.4 per cent rise in June. Final product prices rose by 0.2 per cent after a similar rise in June.Retail prices lifted 0.8 per cent in July, after a similar result in June.
• Capacity utilisation lifted from 79.1 to 81.0 in July, in line with the long-term average of 81.2 per cent.
• The proportion of firms reporting that they did not require credit eased from around 65 per cent in June to around 60 per cent in July.

Consumer sentiment:

• The ANZ/Roy Morgan consumer confidence rating fell by 5.7 per cent in the week to July 10 after rising by 1 per cent in the previous week. The confidence rating is up 9.3 per cent on the lows recorded for the week to May 25.
• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes.

Credit & debit card lending:

• Figures released from the Reserve Bank show that the average credit card balance rose by just $2.10 (0.1 per cent) to $3,220.7 in June. The average credit card balance was down 0.7 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 1.7 per cent.
• Of credit cards attracting interest charges, the average outstanding balance rose by $26.40 in June to $2,245.40. The average balance accruing interest is down by 1.2 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 4.5 per cent.
• The number of credit cards are up just 0.7 per cent on a year ago.
• The average credit card limit rose by $12.90 to $9,287.60 in June. The average credit card limit rose by 2.2 per cent in the year to June.
• The average number of transactions on credit cards in June was 10.8, similar to May. In smoothed terms the average number of credit card transactions hit a record high of 10.68 in May. The average purchase on a credit card was $135.13 in smoothed terms (average for the year to June).
• The average number of transactions on debit cards in June was 7.6, down from 8.0 in May. In smoothed terms the average number of debit card transactions was 7.82 in June – a record high. The average purchase on a debit card is $55.32.
• The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
• The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
• Business confidence and conditions are certainly a lot better than where they were a year ago. The ongoing lift in profitability will be key in ensuring that a further lift in employment takes place. Smart companies are looking for opportunities in the current environment but there are still plenty of risk-averse businesses on the sidelines. Exports and housing construction are the key drivers of the Australian economy.
• The Reserve Bank doesn’t need to be in a rush to lift interest rates. Inflation remains well contained, while the recent lift in the unemployment rate and underlying Aussie dollar continues to hamper rebalancing efforts across the economy.

What is the importance of the economic data?

• The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
• The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

What are the implications for interest rates and investors?

• Business confidence and conditions are certainly a lot better than where they were a year ago. The ongoing lift in profitability will be key in ensuring that a further lift in employment takes place. Smart companies are looking for opportunities in the current environment but there are still plenty of risk-averse businesses on the sidelines. Exports and housing construction are the key drivers of the Australian economy.
• The Reserve Bank doesn’t need to be in a rush to lift interest rates. Inflation remains well contained, while the recent lift in the unemployment rate and underlying Aussie dollar continues to hamper rebalancing efforts across the economy.

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RP Data Rismark Home Prices; PMI

• Home prices surge: The RP Data – Rismark Home Value Index reported that capital city home prices rose by 2.3 per cent in March – the biggest monthly gain in records going back over 18 years. Home prices lifted by 3.5 per cent in the March quarter and were up 10.6 per cent over the year.
• Total returns on capital city houses were up 15.3 per cent on a year earlier and units were up 14.8 per cent.
• Manufacturing weakness: The Performance of Manufacturing index fell by 0.7 points to 47.9 in March. However new orders lifted from 50 to 52.3 – a five month high. Any reading below 50 suggests manufacturing is contracting.

What does it all mean?

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RP Data Rismark Home Prices; Manufacturing gauge; TD Inflation Gauge

• 

  House prices rose for eighth consecutive month

  Home prices rose for the eighth consecutive month: The RP Data – Rismark Home Value Index reported that capital city home prices rose by 1.2 per cent in January to be up 9.8 per cent over the year.

• Total returns on capital city houses were up 14.7 per cent on a year earlier and units were up 13.3 per cent.
• Manufacturing contracts: The Performance of Manufacturing index fell by 0.9 points to 46.7 in January. Any reading below 50 suggests manufacturing is contracting.
• Inflation contained: The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.1 per cent in January to stand 2.5 per cent higher than a year ago.

What does it all mean?

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Retail trade; Inflation gauge; Job ads

• 

  Job ads down on last year.

  Retail spending up: Retail trade rose by 0.8 per cent in September, well above market forecasts. Adjusting for inflation, retail trade rose by 0.7 per cent in the September quarter.

• Inflation contained: The TD Securities-Melbourne Institute monthly inflation gauge rose by just 0.1 per cent in October to stand 2.1 per cent higher than a year ago. The annual underlying measures were 2.2 per cent and 1.7 per cent.
• Job Advertisements fell by 0.1 per cent in October to be down 11.6 per cent on a year ago.
• House prices: The ABS measure of home prices rose by 1.9 per cent in the September quarter.

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Capital city home prices fell by 0.2 per cent in seasonally adjusted terms in March after a downwardly revised 0.5 per cent slide in February, according to the RP Data-Rismark Hedonic Australian Home Value Index – the largest property database in Australia. Outside capital cities, prices rose by 0.2 per cent in March.

Capital city home prices fell by 2.1 per cent over the first three months of the year – marking the largest quarterly slide in property prices on record. Prices in the ‘Rest of State’ markets were down 0.5 per cent in annualised terms.

Prices rose in just two of the seven capital cities in March with Darwin prices up 1.1 per cent, followed by Melbourne up 0.6 per cent. Prices fell most in Perth (down 1.9 per cent), Brisbane (down 1.4 per cent), followed by Adelaide (down 0.7 per cent). Sydney prices were unchanged in March.

Private sector credit rose by 0.6 per cent in March to stand 3.6 per cent higher than a year ago. Housing credit grew by 6.6 per cent in annual terms marking the weakest annual growth rate in records going back 34 years.

What does it all mean?

What do the figures show?

What is the importance of the economic data?

What are the implications for interest rates and investors?

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• Council approvals to build news homes fell by 7.4 per cent in February after sliding by a revised 11.6 per cent in the prior month. In annual terms approvals are down 21.8 per cent on a year ago.
• The floods continue to play a part in the weak result, but even excluding Queensland new dwelling approvals fell by a considerable 6.6 per cent in February.
• Retail spending grew by 0.5 per cent in February – in line with the Commonwealth Bank Business Sales Indicator which was released two weeks ago. Over the past year retail trade lifted by just 3.6 per cent.
• Across the states Queensland retailers outperformed their peers with sales up 2.3 per cent in February.
• Private sector credit rose by 0.5 per cent in February to stand 3.4 per cent higher than a year ago. Housing credit grew by 7 per cent in annual terms marking the weakest annual growth rate in records going back 34 years.

What does it all mean?

• The weakness in housing activity is here to stay – at least for the near term. After sliding by almost 12 per cent in January, approvals have slumped by a further 7 per cent in February. In fact in annualised terms approvals are now down over 24 per cent on a year ago. Whichever way you cut it the weakness in housing activity is plain to see.
• There is no doubt that the wet weather and in particular the floods in Queensland have had a serious detrimental impact to activity levels. Especially given that Queensland approvals have fallen by over 20 per cent in the past two months, but even when Queensland is excluded, approvals fell by a sizeable 6.6 per cent in February.
• The building approvals series tends to be volatile especially given that apartment approvals, tend to be lumpy. And it is important to note that the figures are likely to be revised in coming months, given the flooding. Despite the possibility of revisions to the data, it is clear that there is an underlying level of weakness in housing activity. Not only is overall building approvals plummeting but the all important private sector new house segment remains weak, with a 17 per cent slide in the annual growth rate.

• The retail sector has certainly done it tough over the past year. Annualised growth in sales is still subdued at just 3.6 per cent – a far cry from the decade average growth of 6 per cent. The tightening of monetary policy and unwinding of stimulus has been the key reason for the turnaround in the fortunes of the retail sector. The domestic economy is not shooting the lights out and retail activity is sluggish.
• The larger department and chain stores have fared better, given the ability to discount to a greater degree. In annual terms sales are up 4.5 per cent at the larger retailers while smaller retailers recorded growth of just 2 per cent. On a positive note Queensland retailers outperformed their peers in the month of February with sales up 2.3 per cent. It may be an early sign of the rebuilding that should gain traction in coming months.
• Part of the sustained weakness in the retail sales data can be blamed on lower prices, rather than weaker spending, given the widespread discounting taking place across the retail sector. However weaker volumes are clearly playing their part. Prices of some goods are coming down because our dollar is strong, but plenty of
  retailers are cutting prices because consumers refuse to spend.
• The Australian economy has certainly lost momentum over the last couple of months. Not only are house prices going backwards, but retail spending is barely growing. And even the latest improvement in private sector credit comes after considerable period of weakness. The pickup in business credit is encourage but follows seven months of going backwards. Further improvements would be needed in coming months to claim a full blown turnaround.

What do the figures show?

Retail trade:

• Retail trade rose by 0.5 per cent in February after a 0.4 per cent rise in January. Non-food retailing rose by 0.9 per cent in February after fall by 1.1 per cent rise in the prior month. Over the past year retail trade lifted by just 3.6 per cent.
• Sales by chain stores and other large retailers rose by 0.5 per cent in seasonally terms in February while sales by smaller retailers rose by 0.6 per cent. In annual terms sales at chain stores were up 4.5 per cent on a year. Sales at smaller retailers were up just 2.0 per cent on a year ago.
• During February, sales increased most at other Furniture, floor coverings, houseware and textile goods retailing (up 4.3 per cent). Other retailing groups like newsagencies, stationary shops and florists recorded healthy gains up 3.1 per cent in the month. Sales fell most at other recreational good retailers – including sporting, entertainment and toy retailers – (down 2.2 per cent), followed by footwear retailers (down 1.1 per cent).
• Across the states sales lifted most in Queensland (up 2.3 per cent), followed by Northern Territory (up 1.7 per cent), Western Australia (1.6 per cent), and Tasmania (up 1.3 per cent). Sales fell in the ACT (down 1.6 per cent), South Australia (down 0.5 per cent and Victoria (down 0.3 per cent).

Building Approvals:

• New dwelling approvals fell by 7.4 per cent in February, after sliding by a downwardly revised 11.6 per cent in January. Dwelling approvals are down 21.8 per cent on levels of a year ago.
• Excluding Queensland new dwelling approvals fell by 6.6 per cent in February.
• House approvals rose by 0.5 per cent in February (private sector up 0.2 per cent), after sliding by 2.8 per cent in January. Apartment approvals fell by 20.5 per cent in February (private sector was down 20.0 per cent) after sliding by 23.3 per cent in January. In annual terms apartment approvals are down 26.1 per cent on a year ago, while house approvals are down 19.5 per cent.

• Dwelling approvals fell in three of the six states in January, with Victoria (down 23.1 per cent) faring worst followed by Queensland (down 11.8 per cent). Approvals rose the most in Tasmania (up 44.4 per cent) and South Australia (up 35.9 per cent).
• In annual terms approvals across the state: NSW (down 10.4 per cent), Victoria (down 17.6 per cent), Queensland (down 38.7 per cent), South Australia (down 2.4 per cent), Western Australia (down 38.6 per cent), and Tasmania (up 1.2 per cent).
• The value of building approvals rose by 13.7 per cent in February and was lower by 9.5 per cent on a year ago.

Private sector credit

• Private sector credit (lending) rose by 0.5 per cent in February after rising by 0.3 per cent in January. Credit growth is up 3.4 per cent on a year ago.
• Housing credit grew by 0.5 per cent with lending to owner-occupiers rising by 0.6 per cent and investor housing up 0.4 per cent. Housing credit is up 7.0 per cent on a year ago – the weakest annual growth in 20 months. Owner occupier housing credit is up 6.8 per cent on a year ago – slowest pace in records going back 20 years. Investor housing lending was up 7.5 per cent on a year ago.
• Personal credit remained rose by 0.2 per cent in February after rising by 0.1 per cent in January. Personal credit was up 0.7 per cent over the year – still well below the rate of inflation. Business credit rose by 0.6 per cent after sliding for seven straight months. Business credit is down 1.7 per cent on a year ago and has been consistently contracting for the past 20 months.

What is the importance of the economic data?

• The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.
• The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
• Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

What are the implications for interest rates and investors?

• The domestic economy is certainly facing headwinds, with the higher Australian dollar curbing tourism and making exports less competitive. At the same time the conservative attitudes of consumers have ensured that retail activity remains relatively weak, while activity in the housing sector remains sluggish.
• More and more it is looking like the Reserve Bank will stay on hold on the interest rate front over the next couple of months. There is nothing in the data to force the Reserve Bank to once again look at rate hikes in the near term.

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