Newsletter

Home sales lift

•    New home sales rose by 4.3 per cent in March after rising by 0.6 per cent in February. Private sector house sales rose by 5.8 per cent in March while multi-unit sales dropped by 10 per cent. New home sales are still down 5.1 per cent on a year ago.

•    The Performance of Services index rose by 5 points to 51.5 in April – marking the first expansion in the sector in six months. Key sub indices, sales and new orders contracted at a slower pace, while employment recorded its best reading in over six years.

What does it all mean?

•    All the data today points to an economy that seems to be attempting to recover from the rapid rate hikes of last year. The 4.3 per cent rise in new homes sales is a welcome sight given that activity levels have been subdued over the past year.

•    Despite the pickup in home sales, the housing sector is in for a extended period of consolidation. Housing finance - a good indicator of future home sales - has come of the boil and property prices recorded its biggest quarterly fall in years over the March quarter. In addition new home sales are still down over 5 per cent on a year ago.

•    Fundamentally, there are good reasons for home building to increase. The rental market is still tight and population growth is healthy. And with the labour market remaining strong, investor housing demand is likely to pickup pace in the second half of 2011.

•    The services sector is growing for the first time in six months. However you cannot really read too much into what on face value looks like an encouraging result. Especially given that the service sector has been doing it tough over the past year and the latest improvement comes after a bout of serious weakness. In addition key sub indices like sales and forward orders are still contracting, albeit at a slower pace.

•    Official interest rates have been on hold for six months and no doubt the lack of rate hikes is allowing businesses and consumers to get back to basics. However there are a couple of factors that will ensure activity remains relatively subdued in the near term, including a stronger currency, conservative buying behaviour of consumers and businesses and the added pressures on the household budget.

•    Businesses are under substantial pressure at present with costs edging higher and consumers driving hard bargains. Input costs and wages remain elevated but selling prices are only modestly rising. In fact the wages sub index of the service survey recorded its highest reading in almost three years. A further period of interest rate stability would clearly help the situation.

•    The general perception is that food prices only go one way – and that’s up. But surprisingly almost 40 per cent of commonly purchased weekly retail items like grocery items, alcohol and petrol actually fell in price during the March quarter. And if it wasn’t for the floods and cyclone, the proportion of items falling in price would have been even higher. It certainly pays to look more closely at prices of the goods we buy, rather than to just take the advice of so-called “experts” that inflation is on the rise.

•    The slide in car sales in April cannot be looked at on its own given the timing of Easter. This year Easter occurred super late compared with last year coupled with a five day long weekend. Unfortunately seasonal adjustment programs find it difficult to account for the “Easter effect”, so it may result in super-strong results in March followed by a weaker result in April. Clearly it will be a case of adding the two months together to find out what is happening. Overall CommSec estimates car sales fell by 1 per cent in seasonally adjusted terms in April.

What do the figures show?

Quarterly retail prices:

•    The Bureau of Statistics has released average prices for 51 key consumer products for the March quarter, ranging from bananas to beer and even petrol. Using averages for the eight capital cities, CommSec has calculated that 32 of the 51 items rose in price during the quarter while the remaining 19 items actually became cheaper. The biggest price increase was by bananas (up 89.8 per cent), followed by oranges (up 19.3 per cent) and onions (up 12.5 per cent). At the other end of the scale, the price of milk fell by 14.5 per cent in the quarter, followed by baked beans (down 7.4 per cent) and tinned peaches (down 4.2 per cent).

•    Other notable price changes: petrol (up 8.3 per cent), packaged beer (down 0.9 per cent), bread (down 1.1 per cent), T-bone steak (down 2.4 per cent), free range eggs (down 3.3 per cent).

Car sales

•    The Federal Chamber of Automotive Industries reported that 74,214 new cars were sold in April, down 8.8 per cent on a year ago. Passenger car sales were 11.9 per cent lower than a year ago, 4WDs were down 5.6 per cent and “other vehicles” (trucks, utes etc) were down 3.6 per cent.

New home sales

•    The Housing Industry Association reported that new home sales rose by 4.3 per cent in March after a 0.6 per cent rise in February. Private sector detached house sales rose by 5.8 per cent in March while multi-unit sales dropped by 10 per cent.

•    Across the states detached new house sales increased by: 13.5 per cent in New South Wales, 11.1 per cent in Queensland, 3.6 per cent in Victoria, and 3.1 per cent in Western Australia. Sales fell by 6.4 per cent in South Australia

•    The Housing Industry Association noted that “The volume of new home sales remains subdued, within which the stronger result for March is certainly a welcome outcome.”

Performance of Services

•    The Performance of Services index rose by 5 points in April to 51.5, marking the first expansion in the sector in six months. The key 50.0 level separates expansion from contraction. Sales and new orders contracted at a slower pace, while employment recorded its best reading in over six years.

•    Selling prices rose modestly while wages accelerated sharply with the sub index recording its highest reading in wages and selling prices were higher.

What is the importance of the economic data?

•    The Federal Chamber of Automotive Industries release figures on new car sales at the start of each month. The data is useful in gauging consumer spending behaviour.

•    The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia's largest 100 home builders.

•    The Performance of Services index is released by Australian Industry Group and the Commonwealth Bank each month. The PSI is designed to provide a guide to conditions in retail, financial and other service sectors.

What are the implications for interest rates and investors?

•    Interest rates are already restrictive and the Reserve Bank would be best staying on the interest rate sidelines in the near term – especially given that inflation is well contained at present. Food inflation is an issue in other parts of the world however it is still well contained domestically. The floods in Queensland together with Cyclone Yasi have led to price rises for a select number of fruit and vegetable products, but prices have already started to fall.

•    The cumulative rate hikes, hangover effect from the expiry of the first home buyer grant and appreciation in property prices has given potential home buyers a valid reason to be more circumspect about future purchases. However the rebuilding phase in flood ravaged towns is likely to support construction activity in the midterm.

Source: Paidonexchange.com.au

Australia's fastest growing regions

by Tim Lawless on April 1, 2010 in Population growth, Research

Over the 12 months to June 2009 and in raw number terms the states which recorded the greatest growth in population were: New South Wales (119,534), Queensland (116,533), Victoria (116,250) and Western Australia (68,077).
In this week’s blog we take a look at the trends in regional population growth analyzing the 25 fastest growing Local Government Areas (LGA) of the country based on the total increase in population.

Australia’s 25 fastest growing Local Government Areas

Source: rpdata.com, ABS

Victoria and Queensland each had eight LGA’s in the top 25.  In Victoria all of the areas except for Greater Geelong where located within the Greater Melbourne metro area.  All of the Melbourne LGA’s could be characterized as being on the outer fringes of the city and in locations which generally enjoy relatively affordable house prices.  Of course greater Geelong, although being outside of Melbourne, is within commuting distance to the city and once more house prices in this region are relatively affordable compared to Inner Melbourne prices.
In Queensland the LGA’s tend to be larger (especially after recent amalgamations) and Queensland LGA’s occupy four of the top five positions of fastest growing areas.  Six of the eight Queensland LGA’s are located in the south-east corner of the state and the remaining two are the large regional cities in North Queensland (Townsville and Cairns).
New South Wales recorded five regions within the top 25 fastest growing LGA’s, all of which were situated within the Sydney metro area and most were situated in the outskirts of the City in areas which are relatively affordable.  The exception was the Sydney LGA which is recording strong population growth thanks to inner city densification.
Western Australia had three LGA’s on the list all of which were located in the outer precincts and can be broadly described as providing more affordable housing than areas close to the city.
Finally in the Australian Capital Territory the Unincorporated ACT LGA, which covers most of the Territory, was the nation’s 13^th fastest growing LGA during the period.
The clear trend is that populations are tending to grow the most in the outer more affordable regions of our major population centres.  It’s not really surprising given that these major regions have the largest amount of land available for greenfield development, the strongest job prospects and most abundant amenity.  In saying this, poor infrastructure provision in these areas often makes travelling around the city difficult and time consuming
We would expect these trends to continue however, we feel it would be beneficial for Government’s to encourage population growth in areas outside of these regions to ease the strain on infrastructure which is already insufficient in the majority of these regions.
Related posts:

1. The population is just different here
2. If you want to own property, get a significant other first
3. What to do, what to do about affordable housing and supply?
4. Population growth is booming but housing starts remain at historic lows
5. Market Activity Increasing rapidly post Christmas / New Year

Premium peril weighing down the market

Outside of Sydney the continuing weakness within the premium housing sector is hampering the broader market performance and resulting in value falls as witnessed in the latest RP Data-Rismark Home Value Index results.
The RP Data-Rismark suite of indices includes a stratified hedonic index which measures the performance of the major capital city markets across the most affordable 20% of suburbs, the middle 60% and the most expensive 20%. The index provides an important insight about the performance of different sectors of the market based on price. It also highlights that although the market may be showing an overall trend the results can be quite different amongst sectors and different capital cities.

Over the 12 months to March 2011 capital city home values have fallen by -0.6% in seasonally adjusted terms and by -0.5% in raw terms. Looking at the stratified hedonic index highlights that overall the market hasn’t necessarily been acting in concert.
The top 20% of suburbs have recorded a fall in value over the year of -3.3%. In contrast, values across the broad middle 60% of suburbs were virtually flat (-0.3%) as were the most affordable 20% of suburbs which were up 0.3% over the year. It is no doubt however, that all three sectors have recorded a marked slowdown in capital gains during recent months.

Within the major capital cities, the market performance over the year has actually been quite different. Across all of the capital cities, apart from Adelaide, the top 20% of suburbs have been the weakest performers. The premium market has been extremely weak within Brisbane (-8.2%) and Perth (-11.8%). On the other hand, the middle 60% of suburbs have been the best performers in Sydney and Brisbane and the most affordable 20% have been the strongest performed in Melbourne and Perth.
Over the last quarter, property values have fallen across all three market segments within the major capital cities. The greatest falls have once again been recorded across the most expensive 20% of suburbs (-2.0%) while the middle and most affordable suburbs have each recorded quarterly value falls of (-0.3%).

Sydney was the only city in which the premium end of the market did not record a fall over the quarter. Given that the top 20% of suburbs have recorded a fall of -1.2% over the year in Sydney, the 0.8% growth over the quarter may be an early sign of improving confidence in that sector. Across all other cities the most expensive suburbs have been the weakest over the quarter.
It is important to note that the top end weakness in Brisbane and Perth has been much more significant over the last quarter.
On an annual basis, values across the most expensive of Brisbane’s suburbs have fallen by -8.2% with a -4.5% fall recorded over the last quarter alone. In Perth, the top end has fallen by -11.8% over the year with a -8.4% fall in the last quarter alone. These results highlight the ongoing and growing weakness within the premium sectors of these two cities.
During the last quarter, the most affordable 20% of suburbs have been the best performed in each city outside of Sydney. In Melbourne (0.3%), Adelaide (0.0%) and Perth (0.1%) values have been either flat or shown some improvement. Given that value growth has stalled and is running well below inflation it may be an indication that values (at the lower end of the market at least) are becoming a little more attractive to purchasers. In saying this, don’t expect a rush of growth because rents are still generally more affordable than servicing a mortgage.

Over the coming months we anticipate that weakness in the premium sector is likely to persist however, falls are not expected to be as substantial as those in recent times. Overall we expect growth in property values to be minimal with some potential for slight falls. If any markets are going to show some signs of life we would expect them to be either the most affordable 20% of suburbs or the middle 60%.