Here’s another view of the Australian housing market – and it looks like there’s some good news ahead.
CommSec have released their latest property bulletin, covering all the latest data important to the housing market.
Here’s what they had to say:
Home Value Index; building approvals
- Dwelling approvals lift: Dwelling approvals rose by 2.4% in May after falling by 5.2% in April. House approvals fell by 8.5% while ‘lumpy’ apartment approvals rose by 15.2%.
- Building boom: More homes are being built than ever before. New homes to the value of a record $57.1 billion were approved over the past year.
- Home prices lift: After falling by 0.9% in May, the CoreLogic RP Data Home Value Index of capital city home prices rose by 2.1% in June. Home prices are up 9.8% over the year.
What does it all mean?
Over the past year, the value of approvals to build new homes was $57.1 billion.
In the space of 12 months, the value of new approvals has lifted by $7.5 billion – almost precisely the expected increase in LNG exports tipped for 2015/16.
Home building will fundamentally underpin growth of the economy over the coming year.
Australia is changing in a fundamental way.
Less than five years ago, only 10% of new home approvals were in high-rise complexes of more than four stories.
Today over a quarter of all new homes being built are in high-rise buildings.
The trend will mean that more restaurants, bars, supermarkets and service businesses like hairdressers will be established in nearby areas, creating opportunities for businesses.
There is no doubt that this is a strong result on home prices.
It was the biggest lift in home prices in a June month with the data extending back to 1998.
While Sydney and Melbourne led the gains in home prices, there were encouraging gains in prices in Hobart and Brisbane.
Still, with interest rates at the lowest levels in a generation, it would have been surprising if there wasn’t strong demand for homes.
While property prices are recording solid gains, investors need to pay attention to the softening rental yields, especially for apartments.
Home building is at record levels and the rental market can be expected to ease further as more homes are completed.
There is no housing bubble, rather an imbalance between supply and demand in key markets like Sydney and Melbourne.
This is much like what happened in the iron ore market: when demand exceeds supply, prices can soar at an unsustainable rate.
But the homes are being built to meet demand, it just takes time.
Investors clearly must tread warily.
What do the figures show?
- After falling 0.9% in May, the CoreLogic RP Data Home Value Index of capital city home prices rose by 2.1% in June.
Home prices are up by 9.8% on a year ago, after recording 9.0% annual growth to May.
- House prices rose by 2.2 % in June while apartments rose by 3.3%. House prices were up by 10.4% on a year ago and apartments were up by 5.6%.
- The average Australian capital city house price (median price based on settled sales over quarter) was $595,000 and the average unit price was $500,000.
- Dwelling prices rose in six of the eight capital cities in June: Melbourne (up 2.9%), Sydney (up 2.8%), Hobart (up 1.8%), Brisbane (up 1.7%), Canberra (up 0.6%) and Adelaide (up 0.4%). Prices fell in Darwin (down 3.9%) and Perth (down 0.4%).
- Home prices were higher than a year ago in six of the eight capital cities.
Prices rose most in Sydney (up 16.2%), followed by Melbourne (up 10.2%), Adelaide (up 4.5%), Brisbane (up 3.4%), Canberra (up 2.4%) and Hobart (up 0.9%). Prices fell in Darwin (down 2.9%) and Perth (down 0.9%).
- Total returns on capital city dwellings in the year to June rose by 14.1% with houses up 14.6% on a year earlier and units up 10.5 %.
- RP Data report: “Looking at the performance of detached housing versus apartments over the financial year, houses are clearly outperforming units in the capital gains stakes.
Over the financial year, house values were 10.4% higher across the combined capitals index while unit values increased by a much lower 5.6%.
The same trend where houses are showing a higher capital gain than units is evident across each of the capital cities except Hobart and Darwin.”
- “Gross rental yields drifted another notch lower in June due to dwelling values rising at a faster pace than weekly rents.
Currently, the typical gross yield for a capital city house is recorded at 3.5%, which is equivalent to the record low last recorded in 2007.
The average gross yield on a capital city unit also fell over the month to reach 4.4%; the lowest gross apartment yield since 2010 and not far off the all-time low of 4.3% recorded in 2007.”
- Dwelling approvals rose by 2.4% in May after falling by 5.2% in April. Approvals are up 17.6% on a year ago. In trend terms, approvals eased 0.1% in May.
- House approvals fell by 8.5% in May (private sector down 8.4%). Meanwhile ‘lumpy’ apartment approvals rose by 15.2% in May after falling by 15.6% in April.
- In trend terms dwelling approvals are up 18.5% on a year ago with house approvals up 1.9% while apartments are up by 42.1%.
- Across states in May: New South Wales approvals rose by 8.8%; Victoria rose by 11.0%; Queensland rose by 3.6%; South Australia fell by 9.9%; Western Australia rose by 0.2%; Tasmania fell by 32.6% after rising 31.9% in April. In trend terms, approvals rose by 9.7 % in the Northern Territory and rose 6.0% in the ACT.
- The value of all commercial and residential building approvals rose by 2.1% in May after falling by 3.1 % in April.
Residential approvals rose by 3.3% with new building up by 3.7% while alterations & additions rose by 0.4%. Commercial building fell by 1.1% in May to be down 20.2% over the year (down 11% over the year in trend terms).
What is the importance of the economic data?
The CoreLogic RP Data Hedonic Australian Home Value Index is based on Australia’s biggest property database.
Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic- RP Data Hedonic Index includes all properties.
Home prices are an important driver of wealth and spending.
The ABS’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops.
Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity.
An increase in approvals would point to stronger future activity for construction-related companies.
What are the implications for interest rates and investors?
The lift in home prices is serving to boost wealth.
But clearly the wealth gains will be realised by different socio-economic groups, such as older people down-sizing or families selling out of areas that have experienced solid growth in home prices to more depressed housing markets.
No one should be under any illusion about the significance of the home building boom.
More homes are being built than ever before and there is no sign that the boom is going to end anytime soon.
In trend terms, building approvals have been growing at a 14.4% annual average pace for three years and current growth stands at 18.5%.
The building boom will support building material businesses, developers and consumer durable retailers.
Rising wealth levels will boost general consumer spending. Harvey Norman has already acknowledged the favourable operating conditions.