Following July’s increase in the RP Data-Rismark home values index, RP Data’s Cameron Kusher has provided sensible commentary arguing that the housing market is “precariously balanced” and that it is probably too early to call a bottom:
The results for June and July 2012 have been quite strong with capital city home values increasing by a total of 1.6% over the two months. It is our belief that the improvement in market conditions can mostly be attributed to to the fact that variable mortgage rates are 100 basis points lower than since the cash rate started falling in November last year. Improved affordability is beginning to have some positive flow through on the housing market.
From here it will be interesting to see whether or not the positive results, at least at a macro level, can be sustained. There are still a range of barriers in place that are likely to stymie the speed of a market recovery. Buyers are still light on the ground, with the number of home sales at lower levels than last year (we estimate national house and unit sales were 14% below the five year average and 4% lower than a year ago) along with other factors such as the low growth in housing credit, a high household savings ratio and greater levels of pessimism than optimism by consumers it is difficult to reconcile how this growth can continue. Additionally there is the fact that effective supply levels remain high; despite a fairly consistent reduction in total listing numbers, the total number of homes available for sale remains significantly higher than what would be considered normal.
Other indicators are supporting the green shoots theory. Retail sales were up more than expected in June, dwelling approvals have shown some life, the average number of days it takes to sell a home is reducing and vendors are now discounting their initial asking prices by less. The trends are pointing in the right direction, however the signs of a recovery are quite fresh and as we have seen on several occasions since the start of the GFC, conditions can change quite quickly. Another positive month-on-month result in August will provide more confidence that a housing market recovery is underway.
My own views on where the housing market is positioned were discussed in this week’s edition of MacroInvestor. Click for a free 21 day trial.
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
