The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, January 31, 2011

Aussie dwelling values tread-water in December

Based on more than 357,000 sales in 2010, the market-leading RP Data-Rismark Hedonic Home Value Index reported modest 4.7 per cent growth over the 2010 calendar year across Australia’s combined capital cities, which was in line with Rismark and RP Data’s original forecasts.

In the ‘Rest of State’ markets, which cover the circa 40 per cent of homes not located in the capitals, dwelling values rose by an even meeker 0.8 per cent during 2010 according to RP Data-Rismark’s Hedonic Index. This soft result likely reflects the weaker demand and supply fundamentals in regional areas.

Across all regions throughout Australia, RP Data-Rismark estimates that the national median dwelling price was $420,000 in the three months to December. In the capital cities, the median dwelling price was a higher $475,000. Across the cities, the most expensive capital city is Sydney ($525,000), followed by Canberra ($510,000), Melbourne ($505,000), Darwin ($481,000), Perth ($465,000), Brisbane ($435,000), Adelaide ($387,000) and Hobart ($325,500).

Almost all of the growth in capital city home values was experienced in the first quarter of 2010, when dwelling values grew by 3.6 per cent (compared with 4.7 per cent over the year).

Rismark’s managing director, Christopher Joye, commented, “The RBA’s four interest rate hikes in 2010, which were topped up by a fifth via the banks, conspired to snuffle out capital growth during the remainder of the year. Indeed, the capital city housing market very clearly peaked in May 2010, and remains below this point today.”

In the month of December, capital city dwelling values continued to flat-line with an insignificant 0.2 per cent (seasonally-adjusted) increase in home values (November’s previously reported -0.2 per cent decline has revised to -0.1 per cent). Dwelling values in the ‘Rest of State’ areas tapered by -0.3 per cent in December in seasonally-adjusted terms.

In the December quarter, Australian dwelling values were broadly stable. In the capital cities, RP Data-Rismark’s National Hedonic Index rose by only 0.4 per cent (seasonally-adjusted). In the ‘Rest of State’ markets, house values were off by -0.4 per cent in seasonally-adjusted terms.

Melbourne dwelling values led the way in the December quarter with 1.1 per cent capital growth, followed by Sydney (+0.9 per cent), and Adelaide (+0.4 per cent).

In contrast, home values in Perth (-1.9 per cent), Darwin (-1.7 per cent), Canberra (-1.3 per cent) and Brisbane (-0.5 per cent) all went backwards in seasonally-adjusted terms during the final three months of the year.

Over the 12 months to end December 2010, the best performing cities were Melbourne (+8.4 per cent), Sydney (+6.6 per cent), and Darwin (+4.8 per cent). The worst performers were Perth (-2.3 per cent) and Brisbane (-1.0 per cent). Canberra (+2.5 per cent) and Adelaide (+3.6 per cent) fell slightly short of the national, value-weighted capital growth rate.

RP Data’s director of research, Tim Lawless, believes that interest rates are likely to be the primary determinant of housing market performance over the coming year.

“The interest rate futures market is not pricing in a full rate hike until March 2012. While that seems optimistic, if borrowers only have to wear one rate hike between now and March 2012 Australian dwelling values have a good chance of realising higher-than-expected capital gains. A long-term pause in interest rates would be welcomed by all segments of the housing market. If, however, the RBA raises rates several times in 2011, we think dwelling values will struggle to obtain much forward momentum over the year”, Mr Lawless said.

While capital gains have been uninspiring, investors are benefiting from a tight rental market. Nationally, gross yields for apartments and houses are 4.7 per cent and 4.0 per cent, respectively. The most attractive apartment yields are found in Darwin (5.7 per cent), Brisbane (5.3 per cent), Canberra (5.3 per cent), and Sydney (5.0 per cent). Melbourne and Perth have the lowest apartment yields, with returns of just 4.1 and 4.3 per cent, respectively.

Christopher Joye said, “The flat-lining in Australian home values since early 2010 is an encouraging sign from a valuation and fundamentals perspective. We are seeing rapidly rising household disposable incomes combined with no house price growth over an extended period of time. Rismark’s national dwelling price-to-income ratio has already fallen from 4.7 to 4.4 times. Depending on what happens to interest rates, this trend could continue during 2011.”

“If the futures market is right, it will be happy days for Australia’s housing market with the prospect of reasonable capital growth. We expect, however, to see the RBA lift rates considerably more than that implied by the futures market in the face of rapidly brewing inflation and wage pressures, and our central case is, therefore, little-to-no capital growth in Australian home values with a resultant improvement in the market’s valuation fundamentals. As rates start declining in 2012, this should unleash some attractive affordability dynamics. When all is said and done, the key question will be whether the RBA waits for burgeoning wage and consumer price inflation to manifest in the official statistics, or whether it tries to pre-emptively staunch these problems.”

According to Tim Lawless, the real-time variables RP Data tracks also point to the prospect of a tepid housing market in 2011, subject to what happens with rates.

“Leading up to Christmas the number of homes being advertised for sale ramped up very quickly with the capital city markets peaking at just under 127,000 listed properties compared with 89,000 homes for sale at the same time the previous year. Auction clearance rates were hovering slightly below 50 per cent at the end of last year, and average selling times and vendor discounting had both been trending in favour of buyers. These factors imply that we should see further improvements to buyer leverage in 2011, subject to the course of interest rates,”, Mr Lawless said

“The experience of the housing market after the 2003 boom affords some macro guidance as to what to expect in 2011. In 2004 and 2005, capital city home values increased by just 2.3 per cent per annum after a spate of interest rate increases. We could see a similar outcome in 2011 depending on what the RBA decides to do”, Mr Lawless added.