The following text has been extracted from the RP Data-Rismark media release issued at 10.30am today:
Drawing on more than 340,000 sales in the year-to-date, Australia’s leading measure of movements in the value of residential real estate, the patented RP Data-Rismark Hedonic Home Value Index, recorded falls in the month of November in both the capital city (-0.2 per cent) and ‘rest of state’ (-0.1 per cent) housing markets across all dwelling types. In raw terms, the declines were unsurprisingly larger (-0.6 per cent and -0.8 per cent, respectively) given the seasonal slowdown that occurs at this time of the year.
In the capital cities, Australian home values are now lower than the levels they reached in March 2010. That is, there has been no capital growth since the end of the first quarter. Similarly, in the rest of state markets, which account for around 40 per cent of all homes by number, dwelling values are now below their January 2010 peak.
The key drivers of the soft-landing in Australia’s housing market in 2010 has been the RBA and the banks, which have lifted the headline variable mortgage rate from 6.3 per cent in November 2009 to 7.8 per cent in November 2010 (ie, 1.5 percentage points in total).
RP Data’s director of research, Tim Lawless, observed that the decline in Australian home values had been reasonably modest, “Since their peak in May 2010, capital city home values have fallen by 1.0 per cent in raw terms. The rest of state areas peaked in April 2010, and have suffered a similar 0.9 per cent fall. In the broader scheme of things, these are fairly modest adjustments in value.”
The soft-landing in Australia’s housing market has been evidenced in all capital cities and across each segment of the market. When RP Data-Rismark divide up their hedonic dwelling value index into ‘cheap’, ‘middle market’, and ‘expensive’ suburbs, they document a synchronous downturn in capital growth rates across all these areas (see second chart).
Christopher Joye, Rismark’s managing director, added "Since the middle of the year, we have had a somewhat bearish view on housing over the 2010-11 period as a function of our projections for interest rates. If for some unlikely reason the RBA does not raise rates further, we would expect to see national dwelling prices stabilise over 2011 and grind out capital gains in excess of headline inflation, which we anticipate will breach 3 per cent by the end of the year.
Assuming, heroically, that there are no more increases in the cost of mortgage debt, we would forecast capital city dwelling price growth of 4-6 per cent in 2011. This is not, however, our base-case.
We believe that there is a risk of at least three cash rate increases in 2011. In this event, our central case is that there will be little-to-no nominal dwelling price growth over 2011, with a chance of small nominal declines. This is no bad thing, and will only further improve asset-class valuations. Indeed, Rismark has recorded an improvement in Australia’s dwelling price-to-disposable household income ratio, which has fallen from a peak of 4.7 times to 4.4 times in the third quarter of 2010. We believe that the likelihood of substantial national house price falls is remote" Mr Joye said.
Christopher Joye added that the RBA had pioneered a new form of monetary policy, “The RBA has well and truly led the central banking world on the subject of asset prices. The RBA has recently adjusted the way it sets interest rates to take more explicit account of changes in asset prices, which, in principle, include shares, commercial property and residential housing. The RBA accelerated its rate hikes in 2009 and 2010 more rapidly than it would normally have done so in order to engineer a cooling in a housing market that it perceived to be growing at unsustainable rates. Other central banks, such as the Swedish Riksbank, are now following the RBA’s innovative lead.”
“This expansion in the RBA’s policy remit is not, however, without considerable risks: it is always possible that this benign autocrat overplays its hand and lifts rates too far in response to non-inflationary events. Mistakes in this vein arguably occurred in the late 1980s, which led to a peak mortgage rate of 17 per cent in January 1990 and the recession ‘we had to have’. As a consequence, unemployment soared to around 11 per cent. The independence of central banks, and the RBA’s hard-won inflation-fighting credibility, are historically recent innovations. The non-democratically elected leaders of these institutions would, therefore, be wise to exercise their considerable powers with the utmost humility and care”, Mr Joye cautioned.
