Residex has released its house and unit price results for the month of October. According to Residex, house prices nationally fell by -0.18% over the month, although most major capitals rose in value:
Results were better for the unit market, with prices rising by 0.45%, with all major capitals recording value increases:
Residex’s national results sometimes seem highly contradictory when compared against results recorded in the individual capitals. A case in point is the house price results above, which show prices falling nationally over the month but prices rising in most markets. Two months ago, Residex explained the reason for these anomalies as follows:
Residex provides the median outcome of all houses in the market on which it is reporting. It does not report a weighted average for the various sub markets. That is, if Residex is reporting the median house price for Australia, it does not weight and average the outcome for each capital city. Residex’s method provides a much better indication of how the market is travelling. It shows what is happening to the housing assets that fall in the median of all houses in Australia rather than providing the median of a mathematical construct. This means that good results in smaller markets (such as Perth) will not overly influence the results; however, the performance of the larger city markets can have a significant impact on the outcome. It also means that the Australian-wide outcome may not be intuitively obvious as a result of considering the median outcome of each city.
In this month’s commentary, Residex’s CEO, John Edwards is fairly upbeat about the state of the market. Here are the key extracts:
It has been a better year for most Australians as far as the housing market is concerned. The standout capital city performer was Perth, which achieved growth to October 2012 of some 12% better in the detached housing market and 20% better in the unit market when compared to this time last year. Darwin was the next best performer providing an improvement of 7% in the detached housing market and 17% in the unit market.
Overall, Australian detached dwellings provided an improved result of around 3% while the improvement in unit market was in the order of 3.7%.
Consumer sentiment is improving. The Westpac Melbourne Institute Index of Consumer Sentiment posted a rise of 5.2% from October in November, finally bringing it above the 100 point mark to 104.3. At last it seems RBA interest rate reductions may be having an impact. However, I suspect that the reduced negative press about the problems in Europe may also be playing an important role. I also have a suspicion that the number could have been even better if the coverage of the potential that the mining boom is coming to an end had not been so prominent in the media…
The table presents a number of good news stories in addition to the better capital growth outcome for the year: sales activity has improved in most capital cities – only Hobart and Adelaide have seen sales reductions on a full year basis, and most importantly, there have been some significant increases in rentals. This indicates that stock overhangs are being diminished and better outcomes should be achieved in the year ahead.
The outcome and the trends in the data are confirming the predictions Residex has made over the last few years. 2013-14 should see increases in both rental and capital growth that is higher than what has been seen in a number of years. However, by about 2015 Residex anticipates that the market will again retreat. Markets like Brisbane, Perth and Darwin are likely to see a continuation of stronger rates of capital growth; however, these areas could see growth that causes corrections of larger magnitudes than other markets in the longer term, as Residex expects the RBA to make further interest rate reductions in an attempt to stimulate non-mining areas of the economy. This will be a function of relative affordability and stock shortages. Less affordable markets are unlikely to see the same level of exuberance following rate reductions simply because even with rate reductions housing will remain relatively unaffordable…
For those of you who are currently buying or considering investing, the Christmas period often presents bargains. Properties remaining on the market during the Christmas period will be owned by vendors particularly keen to sell; or to put it another way “must sell vendors”.
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.
