It’s always property day at Flufferfax

Today at the AFR:

House prices have stopped falling according to a closer analysis by Macquarie analysts.

“It is now looking very likely that housing prices at the national level are again rising modestly,” the analysts said in a note to clients.

Their analysis is based on an assessment of seasonally adjusted house price data from Domain’s APM and CoreLogic’s RP Data.

“Dwelling price growth and activity are quite seasonal so the data must be seasonally adjusted to get a clear read on housing price trends.”
“After seasonal adjustment, monthly growth in APM’s measure of capital city dwelling prices has picked up modestly in recent months.”

And its the same for CoreLogic.

“Utilising CoreLogic’s data to mid-January shows a clear improvement in seasonally adjusted dwelling price growth, with the caveat that sales volumes in January are very low.”

Does anyone recall this story from two weeks ago?

“It is now looking very likely that housing prices at the national level are again rising modestly,” the pair wrote in a note released this week, adding the disclaimer that “large differences remain between locations and type of housing”.

Given the seasonal nature of housing market activity, spiking in Spring and Autumn before ebbing in between, Fabo and Deverell say that seasonal adjustments must be applied to the data in order to get a clean read as to what’s really going on.

And from what they’re seeing in recent data from Australian Property Monitors (APM) and CoreLogic, it suggests that prices are now moving higher.

“Dwelling price growth and activity are quite seasonal so the data must be seasonally adjusted to get a clear read on housing price trends,” they say.

“After seasonal adjustment, monthly growth in APM’s measure of capital city dwelling prices has picked up modestly in recent months.”

This chart shows changes in Australian home prices on an annualised basis from APM and CoreLogic after seasonal adjustments have been applied.

“Utilising CoreLogic’s data to mid-January shows a clear improvement in seasonally adjusted dwelling price growth, with the caveat that sales volumes in January are very low,” they say.

“We do not expect a repeat of the 2016 bounce back in housing price growth for at least three reasons,” Fabo and Deverell say.

“That period saw 50 basis points of cash rate cuts — this year is likely to be more about speculation on the timing of eventual rate hikes — [while] banks, under APRA’s watch, have become more discriminatory in terms of lending.”

They also suggest that housing investment — a clear factor behind the strong price growth in Sydney and Melbourne from late 2016 — is also “less attractive due to higher interest-only lending rates and very low yields”.

And, as it has in the past, Fabo and Deverell believe higher interest rates will also create headwinds for house prices.

“Rising interest rates will eventually be a major stumbling block for housing prices, as has typically been the case historically absent an income shock,” they say.

“It is also clear that periods of broad based falls in dwelling prices appear much more likely in the medium-term as the strong tailwind from the one-off decline in nominal interest rates over many years cannot be replicated.

Even when Australian house prices fall they rise.