Thursday, September 2, 2010

RP Data August 2010 Index

From the RP Data press release:

After a large 1.0% seasonally-adjusted fall in June, Australian home values changed little in the month of July, recording an increase of +0.1% (up +0.4% seasonally-adjusted).

According to the market-leading RP Data–Rismark Hedonic Home Value Index, Australia’s capital city home values remained relatively flat in the month of July recording a modest, seasonally-adjusted increase of 0.4% (on a raw basis home values were up only +0.1% in the month).

The July results follow a 1.0% seasonally-adjusted decline in the month of June; the first negative movement in Australian capital city home values in 17 months.

The slow-down in Australia’s housing market had been long-anticipated by RP Data and Rismark and was noted by the Reserve Bank of Australia in its most recent Board Minutes.

According to RP Data’s research director, Tim Lawless, the July index results are further evidence that Australia’s housing market has experienced a controlled soft-landing after a resounding recovery during the course of 2009.

“In the period between end 2008 and March 2010, Australian home values rose by 16.3%. Yet monthly growth rates have declined consistently since the start of the year. RP Data and Rismark expect to see the market track sideways over the second half of the year. There is the possibility of modest gains if mortgage rates remain in check and economic conditions continue to improve,” he said.

The deceleration in capital growth rates is evident across the cheaper, middle and more expensive suburbs tracked by the ‘stratified’ version of the RP Data-Rismark Hedonic Index. This index shows that while the most expensive 20% of suburbs realised the highest capital growth between end 2008 and March 2010, these same suburbs have suffered the largest falls in home values in the period since.
According to Mr Lawless, “As has been the case previously, the illiquid top-end of the market is showing higher volatility than lower priced markets. Home values in Australia’s most expensive suburbs fell more in 2008, rebounded quickly in 2009, and are now tapering at a more rapid rate than cheaper property markets. Home values in the most expensive 20% of suburbs were down 2.0% over the three months ending July 2010 compared with smaller declines of 0.4% and 0.7% in the cheapest 20% and middle 60% of the suburbs, respectively.”

Christopher Joye, Managing Director of Rismark International, said, “In contrast to claims that the decline in home values recorded in June would accelerate, we have seen quite the opposite: Australia’s housing market appears to have gravitated back to a no-to-very low growth trajectory, as we forecast.”

Mr Joye added, “RP Data’s leading indicator data also paints an encouraging picture. After falling from historically high 70-80% levels, national auction clearance rates have now leveled at around the 60% mark. While outstanding inventory levels have expanded in response to the weaker demand, they have recently settled. Perhaps most significantly, the futures market is currently pricing in no further interest rate hikes over the next 1-2 years. In recognition of the flat yield curve, we have seen some banks cutting the cost of fixed-rate loans.”

“Looking forward, I would expect to see the major banks pushing housing credit growth a little harder as profitability gains--driven by reduced impairment provisions across their business lending books--dissipate. Australian housing credit growth has been running at record low levels, and has experienced a downward trend since 2006. An increase in credit growth back to reasonable single-digit rates will provide further support to the market in the next 12 months.” Mr Joye said.

Mr Lawless agreed that substantial falls in Australian home values look very unlikely.

He said, “The number of homes being advertised for sale across Australia is only 5% higher than what we saw at the same time last year. We aren't seeing a blow out in stock levels and properties are taking on average about 40 days to sell, which is only a little higher than recent experience.

“And while we have noticed an increase in vendor discounting, this is coming off the very low base we recorded during 2009,” he said.

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