The Experts

Back to life: Australia's housing market

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by Craig James

No sooner had some life returned to Australia’s housing markets than some commentators questioned whether growth rates are too strong. It’s clear that you can’t win when discussing housing – growth is either too fast or too slow, never just right.

Certainly activity in the Sydney housing market has lifted in recent months following a long period of under-performance. In 2012, Sydney dwelling prices lifted 1.2 per cent after falling by 2.4 per cent in 2011. Over the past five years, home prices have lifted at an average annual rate of 3.4 per cent, in line with wage growth.

So far in September Sydney home prices have lifted by 1.2 per cent to stand 8.3 per cent higher than a year ago. Sydney has now moved past Perth to post the strongest annual growth in home prices. In September so far Perth prices have eased by 0.5 per cent to stand 7.9 per cent higher than a year ago.

Of the three other cities where daily prices exist, Melbourne is next strongest with home prices up 1.3 per cent so far in September to be up 5.4 per cent on a year ago. Adelaide home prices have lifted by 1.2 per cent so far in September but are still 0.1 per cent down on a year ago. And home prices in Brisbane-Gold Coast are unchanged so far in September to stand 1.8 per cent higher than a year ago – less than the rate of inflation.

Clearly we should always be alert to signs of unsustainable growth in home prices. But at present there is no need for undue concern. Sydney home prices are lifting in response to low interest rates after a period of under-performance.

The week ahead

Again “top shelf” indicators will be at a premium in Australia in the coming week. The key day is Thursday with job vacancies, population and the financial accounts all released. In the US there is another sprinkling of key indicators over the week.

In Australia, the week kicks off on Tuesday with the Bureau of Statistics issuing a survey of household energy consumption and additional information on Government financial estimates for the current financial year 2013/14.

On Tuesday the ABS releases 10 separate publications but none of great interest to investors or analysts.

On Wednesday the Reserve Bank issues its half-yearly assessment on the financial system: the Financial Stability Review. There are no significant issues especially with consumers and businesses reluctant to borrow. It will be interesting to see if there is any discussion about house prices. In his last speech, the Reserve Bank Governor indicated no great concern about home prices lifting after a long period of stagnation. However some analysts are again rattling sabres about rising prices.

On Thursday, the offerings of economic data go from famine to feast. The March quarter population estimates are issued together with the quarterly Financial Accounts for the June quarter as well as quarterly data on job vacancies with August being the reference month.

Population growth estimates are closely aligned to economic growth, so the latest demographic figures will be closely assessed. Western Australia has the strongest population growth in the land at a 3.5 per cent annual rate while Tasmania has weakest growth near 0.1 per cent.

The Financial Accounts include a raft of estimates. The data will reveal the financial wealth of Australian families as well as holdings of foreign assets by foreigners and the composition of assets held by superannuation funds. In recent times super funds as well as businesses and households have been holding more than normal in cash-based investments.

On Thursday the ABS releases detailed employment data for August. Not only will the figures include estimates on participation rates and work hours but it will also include the latest quarterly estimates of employment across industry groups.

Also on Thursday, the ABS provides estimates of job vacancies across private and public sectors as well as across industry sectors.

Turning attention to overseas markets, the September “flash” manufacturing gauges for the US, China and Eurozone will be released on Monday. Activity has lifted in recent months and economists want to see continuation of the trend.

In the US on Tuesday there are two reports on home prices: from the Federal Housing Finance Agency and Standard & Poor’s/Case Shiller. The Case Shiller measure is tipped to show home prices consolidating with annual gains above 12 per cent.

Also on Tuesday are the usual weekly chain store sales reports, consumer confidence data and the influential Richmond Federal Reserve survey. The consumer confidence reading is expected to have eased from 81.5 to 80.5 in September.

On Wednesday data on durable goods orders (business investment) is released together with new home sales data and the weekly report on mortgage transactions – purchases and refinancing. Economists expect that orders for durable goods (goods lasting more than three years) rose by a modest 0.5 per cent in August with non-transport orders up 0.3 per cent.

While business investment is tepid, new home sales are tipped to have lifted by a far stronger 8.6 per cent in August.

On Thursday the weekly data on claims for unemployment insurance is issued together with final estimates of economic growth in the June quarter. The US is growing at a 2.5 per cent annual pace, similar to that in Australia. And on Friday both personal income and spending are expected to have risen 0.3 per cent in August.

Sharemarket, interest rates, currencies & commodities

How time flies – the first quarter of 2013/14 is nearly over – and at the same time we move into the final quarter of 2013. And on both comparisons the Australian sharemarket has performed well. The ASX 200 has lifted 9.3 per cent in the September quarter to be up 12.9 per cent over 2013. The All Ordinaries index has lifted 9.8 per cent in the quarter and 12.4 per cent over 2013. Total returns (All Ords Accumulation index) have risen by 11.2 per cent in just the September quarter and are up 16.2 per cent over 2013.

The best performing sector in the September quarter has been growth-focussed Capital Goods (up 23.5 per cent) from Consumer Durable & Apparel (up 21 per cent), Media (up 17 per cent) and Materials (up 16.2 per cent). The Resources index has lifted 17.6 per cent. The under-performer has been the defensive Food, Beverages & Tobacco sector (down 6.6 per cent) and Property Trusts (down 1.7 per cent).

Upcoming economic and financial market events

Australia

  • September 25 - Financial Stability Review - Reserve Bank assessment of financial system
  • September 26 - Population estimates (March qtr) - Births, deaths, immigrants
  • September 26 - Job vacancies (August) - Leading indicator of the job market
  • September 26 - Financial accounts (June qtr) - Estimates on financial wealth; foreign shareholdings

 
Overseas

  • September 23 - Flash manufacturing (September) - Economists tip a 0.3 per cent lift in production
  • September 24 - US Home prices (July) - Both FHFA and Case Shiller measures
  • September 24 - US Consumer confidence (Sept) - Economists tip a fall from 81.5 to 80.5
  • September 25 - US Durable goods orders (August) - A modest 0.5 per cent increase is expected
  • September 25 - US New home sales (August) - A solid rise of 8.6 per cent is expected
  • September 26 - US Economic growth (June qtr) - Final estimate should confirm 2.5 per cent growth
  • September 26 - US Personal income (August) - Economists tip 0.3 per cent gains in income & spending

Published: Monday, September 23, 2013

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