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Henry Thornton - Investments : A discussion of economic, social and political issues Housing, Q3 2007 Date 30/09/2007
Member rating 4.4/5
What does 2007 hold for Australia's housing market? Henry and friends follow the major news.
By Henry Thornton Email / Print

Click here to visit Housing (Q2 2007)


Henry, 3/10.  The Reserve Bank today announced it was sitting on its hands.  This was widely predicted, even by Henry, but the bigger issue of how to handle the credit and asset boom remains to be addressed.  The current attitude is by default "let the good times roll", despite the growing risk of a hard landing.

Share price hikes have reminded us of the relentless asset boom that is making us all wealthier - well, most of us.  Now it seems the humble home is well and truely back in this game.

Tim Congdon reports on Australia's housing markets: "AUSTRALIAN housing prices have grown by nearly 10 per cent this year, shrugging off the string of interest rate rises and jitters about the US credit crunch.

"Adelaide, which has the country's most affordable median house price of $365,508, surged ahead with house and unit prices increasing 17.2 per cent in the year to July 31 and 9.4 per cent in the preceding quarter, according to researchers RP Data and Rismark International. ...

"Brisbane's housing prices were also strong, with growth of 17.2per cent for the year.

"Sydney, the most expensive capital with a median price of $561,199, continued to record the slowest growth. But while house prices rose only 4.1 per cent for the year to July, 3 per cent of this was in the previous quarter, showing growth had accelerated.

"Mr Lawless [an expert] said the Australian market was "pretty much bullet-proof" with the four interest rate rises since the beginning of last year and the recent liquidity crunch from the US subprime crisis having little impact".

Henry, 18/9.  Alan Greenspan, grizzled veteran of the interest rate wars, has predicted substantial falls in US house prices.

With "sub-prime" loans a far smaller issue here, Australians should look to a continuation of the rises that have resumed after a lack-lustre year or so - worse in Sydney's outer suburbs and other "sub-location" properties.

Try what price my house - and let us know if the results make sense.

Henry, 4/9.  We again rely on Maurice Dunlevy of The Oz . "ADELAIDE has led a housing market rebound that has seen house prices Australia-wide increase 6.6 per cent in the first half of 2007.

"The 11.6 per cent price increase for the city of churches was followed by a 10.6 per cent rise for Brisbane and a 7.9 per cent increase for Melbourne.

"While nationwide house prices increased 6 per cent, the unit market performed even better with an 8.5 per cent rise, according to a survey conducted by researchers RP Data and financial group Rismark.

"Their latest index also revealed that Sydney houses experienced their strongest growth in years, with a 3.4 per cent rise during the six months to June 30. The study found Australia's median house price was now $459,402, while the median unit price was $365,322".

Maurice Dunlevy, The Oz, 3/9.  THE weekend start of the spring selling season did little to revive the sluggish Sydney housing market.

Saturday's auction clearance rate was 65 per cent, well above the 55.9 per cent rate this time last year but down 0.6 per cent on the previous week.

Australian Property Monitors research analyst Michael McNamara said improving market conditions gave an impression that prices should be moving, but results remained sluggish.

Historically, the spring selling season is boosted by people hoping to buy a home by the October long weekend. But Mr McNamara said other factors were in play this year, including the APEC conference, the looming federal election and the prospect of another interest rate rise.

According to the Real Estate Institute of Victoria, Melbourne's Saturday auction clearance rate was above 80 per cent, reflecting booming sales in inner and middle suburbs. However, houses in outer Melbourne, which are traditionally not sold by auction, remain difficult to sell.

Henry, 30/8.   The Economist  looks at the US housing crisis: "A jam in the flow of credit to homebuyers threatens an already vulnerable economy. If consumers seek to pay down debt in response to falling house prices, spending will suffer, especially with unemployment creeping up. If the economy falters, that should relieve price pressures too. Oil prices dropped below $70 this week from a recent peak of around $78. Richard Berner at Morgan Stanley reckons that market turmoil will itself trim inflation since “it will make buyers hesitate and sellers worry that prices won't stick.”

"Many now expect a cut in the Fed's benchmark rate from 5.25% at its next policy meeting on September 18th. Some think the Fed may act sooner. But it may yet disappoint them. “Financial-market volatility, in and of itself, does not require a change in the target federal funds rate,” said Mr Lacker [a Fed official] this week. The Fed is anxious to calm the credit markets, so that the economy's funds are allocated in line with risk and reward. But even if it succeeds, risky assets are likely to hold much less appeal than they did. The central banker's task is to unscramble price signals distorted by panic, not to protect the markets from a signal that they do not like."

Henry, 8/8.  The good people at St George report today: "The number of owner-occupied home loans rose by 1.1% in June, which was slightly below the market consensus for an increase of 2.0%.
"The ABS's house price index was up 3.2% in the June quarter (+9.2% y-o-y)".  Clearly house prices, at least in up-market parts of most cities, are on the rise, while poorer areas are probably seeing further price falls - good for first home buyers, bad for existing owners.

Henry, 1/8.  Further support for an early August interest rate rise emerged yesterday with the release of building approval data from the ABS.  Australian building approvals rose 7.5% to 12,953 units in June, seasonally adjusted, from an upwardly revised 12,048 units in May.

The key factor behind the June rise was a 22.1% increase in the typically volatile multi-unit dwelling approvals.  Private sector approvals rose 1.2% to 8,589.

Recent ABS house price data shows house prices are on the way up with strong gains recorded in most capital cities.  Perth (32.1%), Darwin (15%) and Hobart (10.5%) recorded the largest percentage increase in the 12 months to March 2007.  Henry eagerly anticipates the June results, due to be released on August 8.

More here.

Henry, 25/7. The News Ltd press reports today that "Melbourne and Canberra were the standout performers in a mixed bag of capital city housing results for the June quarter while unit prices are improving nationwide".

"Melbourne house prices jumped 6.5% to a median of $398,217, the strongest growth in six years, according to researcher Australian Property Monitors.

"But it was a different story in other capitals.  Prices in Hobart falling 1.6 per cent and Perth's housing bubble deflating at a rate of 0.2%."

Henry, 24/7.  "TALK of a real estate price surge in Melbourne since the start of the year gets little support from the first house price data survey for the June quarter. It shows prices rose at a solid rather than spectacular rate for the first six months of the year.

"Median houses prices in Melbourne rose by 6.5 per cent in the year to June 30, according to data provider Residex. For the June quarter, growth was just 0.4 per cent".

Henry, 16/7.  "Its the economy stupid" used to be a reliable political slogan.  But Australia's evident "nirvana economy" co-exists with the opposition being well ahead of the government in the opinion polls.  Even rusted-on Libs are beginning to say the jig is up.

George Megalogenis of the Oz has uncovered the answer.  It is the "two speed economy" - the battlers are in western Sydney doing it tough with house prices are still falling despite the boom in the resource states and slow recovery elsewhere.

"The Government has control of six marginal electorates across NSW where home borrowers have suffered the double whammy of higher interest rates and capital loss, including John Howard's own seat of Bennelong in Sydney's north, where the median house price is 4.5 per cent down on the 2004 figures.

"Three of the six capital-loss electorates - Parramatta and Lindsay in Sydney's west and Dobell on the central coast and hinterland - have seen prices fall both over the past 12 months and when compared with 2004.

"But at the other end of the scale, prices have been roaring ahead in Western Australia, where the Government is hopeful of picking up two seats from Labor. Each of the state's 15 electorates has enjoyed capital gains of between 23 per cent and 40 per cent in the year to the March quarter, and seven of the 15 have also seen prices double since the last election".

Henry, 11/7.  "Owners shrug off rate fears" writes David Uren in the Oz, but "first home buyers dry up" he could have added.  More on housing the battlers here.

"Home owners are shedding their fears about rate rises and trading up to bigger and better properties, pushing prices up in the process.

"New home loans in April were 11 per cent higher than a year ago and the average loan of $234,300 is 6.4 per cent higher.

"However, first home buyers are being pushed to the back of the queue, with their share of the market falling."

Henry, 3/7.  The number of buildings approved fell by 5.6% in May, following a downwardly revised increase of 3.4% in April. This dataset has been extremely volatile lately and it is therefore useful to look at the trend series as well, which fell by a much lower 0.6% in the month.

Over the year, total dwelling approvals fell by 7.2% in seasonally adjusted terms and 3.7% in trend terms. This is a rather bleak picture for building approvals on both measures and the actual number of dwellings approved is at its lowest level in 5 years.

The volatility in units continues with private sector “other dwellings” falling by 10.0% (seasonally adjusted) in May, to be 16.6% lower over the year. Private sector houses, which looked like they had bottomed out, also declined by 3.2% (seasonally adjusted) in the month and they are now 3.5% lower on an annual basis.

A state breakdown of the trend estimate reveals a drop in approvals across all the states in May. In fact, every state except Queensland posted an annual decline in trend approvals - with Western Australian building approvals falling by 16.2% over the year.

One positive sign from the data is the increase in alterations and additions. The value of alterations and additions rose by 4.7% in May and is now 4.4% higher over the year. This is consistent with the idea that people are finding new housing unaffordable and choose to renovate instead.

Dwelling approvals may have not hit its trough just yet, but we expect a small turnaround in the near future. Factors such as an increase in rental demand and a spike in population growth will at some stage translate into a higher number of approvals.

Source: St George Data Snapshot

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