SQM Research’s half yearly housing update

SQM Research last night released its half yearly housing update via their weekly newsletter, which highlighted some of the trends in the Australian housing market:

According the SQM Research Asking Prices series, capital city asking prices rose by 0.8% for houses and 0.5% for units for the June quarter.

The strongest result from the capital cities came from Sydney units; rising by 1.8% for the quarter. The weakest result came for Canberra houses, with asking prices falling by 3.8% for the quarter.

Overall, the index record yet another mixed bag for the national housing market. The outlook at this stage does not look materially different. Based on these numbers the ABS will likely report a patchy June quarter with a 0.5% to 1.0% rise. However, I am mindful that the June quarter historically has been the strongest period for price rises on the ABS’s housing price index, so it is very possible the official numbers may produce faster growth rates.

I am also mindful of the ongoing positive auction clearance rates coming out of Sydney, which is suggestive the market is still rising, albeit at a slower pace than what we had in the lead up to Christmas 2013.

What has changed over the course of the June quarter is the outlook for interest rates. Back in April there was still much speculation of an expected interest rate rise as Early as May with consensus there would be one sometime in the late 3rd quarter. All that speculation has now vanished. Indeed, money market expectations are now that the rate rise won’t come this year or even next! Indeed, markets have been pricing in a small but growing chance of a rate cut.

The RBA will be somewhat pleased with these results – In that we now have a housing market that is not too cold nor not too hot. The call made earlier this year of a long period of stable interest rates appears to have been the correct call. The only question looming is will there be enough housing construction activity to offset the mining downturn? On that front there have been clouds forming. After a massive surge last year, national building approvals have been trending down since the beginning of the year.

This new trend is not what the RBA would want to see and may also explain why there is no interest rate hike priced in at all for the foreseeable future. So it all sounds like a bed of roses for existing property investors – ongoing rising prices and no rate hikes. But even for them it is not all good news as there is still the issue of a flat rental market as we have been reporting in recent months.

And so, what of our predictions we made back in September last year? Remember it was for 7-11% capital growth as an average for the capital cities. So far we believe that forecast is very much on track. As we also predicted, the main driver of this aggregate result, being Sydney continues to record annual increases of 15% but we note asking prices have slowed a little in growth. Our predicted boom of 15-20% in Sydney has well and truly come in but whether it is going to sustain itself all the way through the year is very debatable right now.

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