The three early movers in Australia’s economic debate, Paul Bloxham, Stephen Koukoulas and Chris Joye are back in the saddle.
Bloxo is out again today reiterating his call that the bottom of the interest rate cycle is in:
We remain optimistic that Australia will see a smooth rebalancing of growth, from being led by the mining sector, as it was in 2012, to being supported by growth in the interest-rate sensitive sectors such as housing and retail sales (we set out this case in Australia’s great rebalancing act: Looking beyond the mining investment boom, 7 December 2012). Current policy settings seem appropriate to support that rebalancing, in our view.
A key factor supporting this view is that the mining story is not over yet. There is still further support for GDP growth from rising mining investment in H1 2013, as there is still significant work yet to be done on projects that are being built, particularly the large LNG projects.
This means there is time for the other sectors of the economy to take over as the key drivers of growth. A possible constraint to this smooth rebalancing of growth may be the high level of the AUD. However, much like its effect on inflation, our central view is that the drag on growth from the AUD will also wear off. Firms and households are adjusting to the new higher level of the AUD, with the biggest drag on growth is now likely to be behind us.
Yes, finally, there have been some early signs of promise with new home sales off their lows yesterday. Here is the chart that matters, data on new house sales (which is what matters given houses is where all the employment is):
Retail sales have also formed a little uptrend as rate cuts have deepened:
But beyond last year’s carbon tax rebate spike, retail sales are stuck well below 4% growth. In my view, sales growth will not accelerate unless house prices do.
The Kouk goes all in on just that:
The bottom line was that the current favourable level of affordability would spur a rise in house prices by something around 10 per cent this year…The data for new home sales is pointing to a powerfully strong upswing. The Housing Industry Association’s new home sales rose 6.2 per cent in December after rising 3 per cent in November and 3.6 per cent in October. That is a thumping 13 per cent lift in sales in the final three months of 2012, an impressive lift after home sales were in the doldrums around the middle of last year…The housing sector is set for a strong performance in 2013. There are likely to be strong rising house prices, higher home sales and a lift in construction. Low interest rates, high immigration and improved affordability are the trifecta of positive news that make this close to certain.
Hmmm, do you see “powerful” in the above housing chart? As for 10% price appreciation, that would blast house prices to new record highs. Here is the RP Data chart:
It looks like a slow bottoming process to me and let’s not forget that the recent move is seasonally affected. Moreover, credit data has not yet accelerated enough to corroborate a strong house price shift.
Even Chris Joye is struggling to sound excited:
So it’s official. According to RP Data’s “hedonic” daily house price index data released on Friday morning, Australian home values appreciated sharply over the month of January with total capital gains of 1.2 per cent.
National dwelling values have also punched out capital growth over the last quarter (1.0 per cent) and 12 months (1.8 per cent). Indeed only one city, Melbourne, failed to deliver higher house prices over the last year.
If one includes gross rental yields, the total returns earned by Australian property investors before transaction costs have been 6.3 per cent over the 12 months to the end of January.
Ex-costs, Enron was immensely profitable too.
So, am I impressed? I’m excited that we’re seeing some response to the RBA at last. But at this juncture it is nowhere near enough to make me think that either there is a sustained recovery underway in house prices, construction, retail or any interest rate sensitive sector. With a patchy global recovery in the offing, a mid-year peak in mining investment and second half iron ore price slide in the offing, I’m not calling the bottom for anything yet.
130201 RBA Observer – On hold next week – easing phase may be done.pdf
