Guess what? Contrary to the silly claims of some, Australian
house prices are not falling through the floor. In fact, Aussie dwelling prices
surged back by a surprisingly strong 1% in the month of June assisted by a
tail-wind in the form of the RBA’s generous rate cuts over the preceding 60
days. And these gains (not losses) were experienced by around 90% of the nation’s
capital city owners.
Over the entire month of June, RP Data-Rismark’s “daily”
hedonic index, which RBA remarks imply is its preferred benchmark, documented
healthy capital growth in Sydney (+1.0%), Melbourne (+1.0%), Brisbane and the Gold
Coast (+1.0%), Perth (+2.0%), Hobart (+2.7%), and Canberra (+2.0%). Only
Adelaide (-1.1%) and Darwin (-0.7%) suffered losses.
The first chart below illustrates the change in the value of
homes situated in the major east coast cities while the second includes the remaining
conurbations. As I correctly anticipated in this
column two weeks ago, it would appear that the RBA’s 75 basis points worth
of rate cuts over May and June, which have translated into about 55 basis
points worth of variable lending rate reductions, has had a rapid impact on
housing conditions. Indeed, the commonality in the recovery in home values
across most cities since the end of May is arresting.
Whereas at the end of May the year-to-date change in
Australian dwelling values was estimated to be -2.2%, this has now fallen to
just -1.2% as at 30 June. It is entirely conceivable that the Australian
housing market could end the year in the black.
Rismark’s quantitative forecasting models, which are used by
banks, insurers, and various government agencies, imply that national dwelling
values will be flat over the next 12 months, which would be a materially better
outcome than the 3.8% nominal loss experienced in 2011 (according to RP
Data-Rismark’s eight capital city index).
One of the most significant insights from the June data
release was the exceedingly sharp improvement in Melbourne conditions.
Melbourne home values have jumped 1.7% since 11 June alone (refer to the back
line in the first chart above). Regular
readers will recall that Melbourne dwelling values appreciated by a remarkable
35% between January 2009 and December 2010. Yet the indigestion caused by this
boom—and Melbourne’s unusually low rental yields—arguably contributed to a
circa 8% correction in the period since.
The June data offer the first preliminary signs that the
RBA’s preparedness to slash rates may have helped break-the-back of Melbourne’s
housing malaise. And the sensational auction results garnered by Channel Nine’s
The Block show last night do nothing
to dispel this possibility.
RP Data-Rismark’s June findings are also impressive because their
daily index numbers represent actual
changes in dwelling values; that is to say, there has been no
“seasonal-adjustment”. We know that the winter months of May through August,
and June and July especially, are typically very weak. So in “seasonally-adjusted”
terms, the capital gains recorded in June would have been larger again.
Dispassionate analysis reveals that Australian housing
market’s fundamentals look increasingly benign. The national dwelling
price-to-income ratio is at its lowest level since March 2003. (In fact,
applying Rismark’s hedonic adjustments, disposable household incomes have grown
more quickly than house prices for the past nine years.) As the RBA’s Dr Guy
Debelle pointed
out last week, mortgage arrears remain low, and there is no evidence of
overbuilding. Indeed, most credible experts, such as the government’s
independent National Housing Supply Council,
have concluded that there is a structural housing shortage. The labour market is
purportedly close to being fully-employed while wages have been expanding at a
healthy clip. Finally, all-important mortgage rates are way below their
long-term averages. Banks are
offering discounted variable rates and 3-year fixed rates today as low as
5.62% and 5.75% per annum, respectively.
It will be fascinating to see how the Sydney and Melbourne
broadsheets cover the June house price results given their predilection for peddling
gloom in favour of more sober analysis. This persistent bias in popular
reporting has led the RBA Governor, Glenn Stevens, and other senior media
commentators, such as Ross Gittins, to argue that some in the media are
misleading the community as to the true state of our economy. This may help
explain why many confidence surveys depart so dramatically from the real
economic data.
See also Rory Robertson's smack-down of Steve Keen in the Financial Times the other day here.
