Healthy home prices: CommSec's Savanth Sebastian

Healthy home prices: CommSec's Savanth Sebastian
Healthy home prices: CommSec's Savanth Sebastian


Across the nation home prices are starting to look healthier with the gains more wide spread across the states, rather than being just Sydney or Melbourne based. In fact Sydney prices only lifted by 0.1% while capital city home prices rose by a much more robust 0.9%. Even more encouraging five of the eight capital cities recorded growth.

In fact if you take out the capital cities and look at the “Rest of State” index, home prices lifted by 0.6%. Granted it is still early days for the regional cities with home prices up just 2.8% over the past year, but the signs are more encouraging. We would expect to see the lift in capital city house prices eventually filters out across the regional towns over the next 12-24 months. Strength in home prices across the nation will be more supportive of a lift in activity levels over the medium term.

Sydney house prices are up almost 17 per cent on a year ago with total returns lifting by a staggering 21 per cent over the past year. Although in the Sydney housing market there are signs that price growth will be more circumspect going forward. The tighter lending policies being adopted by the banks, coupled with new housing supply should ensure much more sedate property price growth. 

The manufacturing sector expanded for the third consecutive month. Clearly a function of the lower Australian dollar.

The job market continues to improve with job vacancies at the highest levels in almost three-year highs. With population growth slower than in past years, unemployment has more chance of falling over the coming year.

Healthy home prices: CommSec's Savanth Sebastian

What do the figures show?

Home prices

The CoreLogic RP Data Hedonic Australian Home Value index of capital city home prices rose by 0.9 per cent in September to stand 11 per cent higher than a year ago.

House prices rose by 0.9 per cent in September while apartments rose by 0.6 per cent. House prices were up 11.6 per cent on a year ago and apartments were up by 7.3 per cent.

The average Australian capital city house price (median price based on settled sales over quarter) was $613,000 and the average unit price was $515,000. The average Sydney house price was $920,000 – still well short of a $1 million. 

Dwelling prices rose in five of the eight capital cities in September: Melbourne (up 2.4 per cent), Brisbane (up 1.4 per cent), Canberra (up 1.0 per cent), Perth (up 0.5 per cent) and Sydney (up 0.1 per cent). Prices fell in, Hobart (down 1.9 per cent), Adelaide (down 1.2 per cent), and Darwin (down 0.3 per cent).

Home prices were higher than a year ago in four of the eight capital cities. Prices rose most in Sydney (up 16.7 per cent), followed by Melbourne (up 14.2 per cent), Brisbane (up 4.6 per cent), and Canberra (up 0.6 per cent). Price fell in Darwin (down 3.9 per cent), Perth (down 0.9 per cent) Adelaide (down 0.3 per cent), and Hobart (down 0.2 per cent).

Total returns on capital city dwellings in the year to August rose by 14.4 per cent with houses up 14.7 per cent on a year earlier and units up 12.3 per cent.

Job vacancies:

Job vacancies rose by 2.7 per cent to 160,900 in seasonally adjusted terms in the three months to August. It was the highest number of vacancies in almost 3 years (since November 2012).

Over the year vacancies lifted 18.6 per cent in Victoria in original terms over the year but fell 34.2 per cent in Northern Territory and fell by 11.3 per cent Western Australia. Over the past year, job vacancies rose by 15,100 or 10.2 per cent in original terms.

Over the past year, vacancies rose the most in Administrative and Support Services and Accommodation, Cafes and Restaurants (both up 5,100). Vacancies fell most in Manufacturing (down 3,300), Mining and Transport and storage (both down 1,000) and Communication services (down 1,000).

Performance of Manufacturing

The Performance of Manufacturing index rose by 0.4 points to 52.1 in September. A reading above 50.0 indicates that the sector is expanding. Production, orders, exports, sales, and capacity use rose in September but employment, selling prices eased, while wages fell. 

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Healthy home prices: CommSec's Savanth Sebastian

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 Australian Bureau of Statistics releases Job Vacancies data each quarter. The data is useful in gauging the strength of the job marketThe 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?

The Reserve Bank won’t be lifting or cutting interest rates any time soon. A couple more months of sedate growth in Sydney home prices will be welcomed by policymakers – there is just no fundamental reason to change interest rate settings at present.

The ongoing lift in job vacancies is certainly encouraging – supporting household confidence and spending.
CommSec expects interest rate settings to remain unchanged over 2015 and 2016. 
Savanth Sebastian is an economist for CommSec
Dwelling Values Home Prices

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