National Home Prices Article of Interest

National home prices slow; inflation contained By Craig James Home prices ease: the CoreLogic RP Data Home Value Index of capital city home prices fell by 0.3% in November. Home prices are up 8.5% over the year. Inflation well contained: the TD Securities-Melbourne Institute monthly inflation gauge was up 0.1 per cent in November. Prices are up just 2.2% on a year ago. Manufacturing improvement: the Performance of Manufacturing index rose by 0.7 points to 50.1 in November. Any reading above 50 suggests manufacturing is expanding. New orders, sales and supplier deliveries all rose in the month. What does it all mean? Negligible inflationary pressures, an easing of home prices and a lift in manufacturing conditions – what’s not to like? The latest economic data is very encouraging and will ensure that official interest rates remain stable for much of the next year. The slowdown in national home prices together with the very mixed results across capital city housing markets mean that there is no need for the Reserve Bank to progress with so-called macro prudential controls on property investors. In essence, the market is correcting itself with more supply coming on to the market as evidenced by new listings and softer demand for homes in response to the higher prices. There is no bubble – demand ran ahead of supply in some capital cities like Sydney but markets are balancing. The improvement in conditions in the manufacturing sector is encouraging. And further falls in the Aussie dollar should help the recovery process in the sector in coming months. What do the figures show? Home prices The CoreLogic RP Data Hedonic Australian Home Value index of capital city home prices fell by 0.3% in November to be up 8.5% on a year ago. House prices fell by 0.3% in November while apartments rose by 0.1%. House prices were up 8.9% on a year ago and apartments were up by 5.9%. The average Australian capital city house price (median price based on settled sales over quarter) was $587,500 and the average unit price was $503,000. Dwelling prices rose in four of eight capital cities in November: Sydney (up 1%), Perth (up 0.9%), Brisbane (up 0.4%), and Hobart (up 0.2%). Prices fell in Melbourne (down 2.6%), followed by Darwin (down 0.8%), Canberra (down 0.5%), and Adelaide (down 0.3%). Home prices were higher than a year ago across all capital cities. Prices rose most in Sydney (up 13.2%), followed by Melbourne (up 8.3%), Brisbane (up 6%), Hobart (up 5.2%), Adelaide (up 2.8%), Canberra (up 1.7%), and Perth and Darwin (both up 1.4%). Total returns on capital city houses were up 13.1% on a year earlier and units were also up 10.9%. Inflation gauge The monthly inflation gauge was up 0.1% in November after a 0.2% lift in October. The annual rate of inflation eased from 2.3 per cent to 2.2% – consolidating in the lower half of the Reserve Bank’s 2-3% target. The underlying rate (trimmed mean) rose by 0.1 per cent for the third straight month in November. The annual rate eased from 2.5% to 2.4%. Excluding volatile items like petrol and fruit and vegetables, the inflation gauge was up 0.2% in November after a 0.1% rise in October. The annual rate of inflation was steady at 2%. TD Securities noted that “Contributing to the overall change in November were price rises for fruit and vegetables (+4.3 per cent), newspapers, books and stationery (+4.1 per cent), and garments (+1.9 per cent). These were offset by falls in automotive fuel (-5.2 per cent), holiday travel and accommodation (-1.6 per cent), and games, toys and hobbies (-8.7%).” Performance of Manufacturing The Performance of Manufacturing index rose by 0.7 points to 50.1 points in November. A reading above 50.0 indicates that the sector is expanding. Of the components, new orders rose from 51.2 to 54.3; employment rose from 47.4 to 47.8; production fell from 51.1 to 47.4; and exports orders fell from 50.7 to 48.1. Encouragingly stocks fell and deliveries rose, pointing to further strength in production and sales ahead. What is the importance of the economic data? The CoreLogic RP Data 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-RP Data Hedonic Index includes all properties. Home prices are an important driver of wealth and spending. The TD Securities/Melbourne Institute Monthly Inflation Gauge is designed to “provide a timely and accurate monthly measure of inflation in Australia”. The Bureau of Statistics only releases the Consumer Price Index on a quarterly basis. The Australian Industry Group and PricewaterhouseCoopers compile the Performance of Manufacturing Index (PMI) each month. The Australian PMI is the Australian equivalent of the US ISM manufacturing gauge. The PMI is one of the timeliest economic indicators released in Australia. The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment. What are the implications for interest rates and investors? Inflation is under control so official interest rates will remain stable until well into 2015. Low interest rates will prompt more investors to assess returns in property and share markets as opposed to cash or fixed interest. The current dividend yield for National Australia Bank is 6.12% with ANZ and Westpac near 5.60% and Telstra around 5.20%. Published on: Monday, December 01, 2014