Home > Buying > Home Prices Hit Record Highs; Consumers Borrow
Home Prices Hit Record Highs; Consumers Borrow
Two months on from this article from CommSec, the trend in high buyer demand and solid up-ward pressure on prices seems to be continuing...
Home prices hit record highs; Consumers borrow
House prices; Private sector credit
Australian home prices hit fresh highs in November, lifting by 1.1 per cent. The RP Data-Rismark Hedonic Australian Home Value Index – the largest property database in Australia – reported that house prices rose by 1.0 per cent in the month with apartment prices up 1.3 per cent.
Over the past year, Australian dwelling prices have risen by 10.4 per cent – the fastest growth in 20 months.
Private sector credit rose by 0.1 per cent in November, after falling by 0.1 per cent in October. The annual growth rate slowed from 1.1 per cent to a near 17-year low of 0.8 per cent.
Business credit fell by 8.2 per cent over the past year – the biggest fall in over 30 years of records. But housing and personal credit are growing with personal lending up in each of the past four months.
What does it all mean?
Everyone has a different response to the latest figures on home prices. If you own, or are paying off, your home, rising home prices are regarded positively. That is, you perceive that higher home prices are serving to boost your wealth levels. If you are renting, you are probably non-plussed that home prices are rising. But if you are planning to buy a property, news about higher home prices is probably depressing – with potential buyers perceiving that home ownership has moved another step further away.
In part the sharp lift in home prices is influenced both by the first homebuyers boost and super-low interest rates. We will have to wait until the New Year before we get clearer readings on home prices. But after taking all the caveats into account, the latest data on home prices would no doubt make the Reserve Bank a little nervous.
The main worry is that home prices are rising at unsustainable rates in some capital cities such as Darwin, Hobart and Melbourne. The last thing anyone wants to see in 2010 is another boom-bust scenario being played out in the housing market. Governments must be committed in boosting the supply of homes to meet strong demand.
It’s fair to say that yet another solid increase in home prices has increased the chances of a rate hike in February. The main uncertainty for the Reserve Bank is the extent to which the housing market slows in the New Year following recent rate hikes and the expiry of the first homebuyers boost.
Even though the housing market could slip a little in the New Year, the fundamental supports are rising population growth and a shortage of property relative to demand. If the Reserve Bank does lift interest rates in the New Year it will be because interest rates are still below ‘normal’ levels as well as the perception that higher home prices are boosting wealth levels and consumer spending. But the Reserve Bank knows that would be self-defeating by trying to correct housing market imbalances by lifting rates. The focus must be on boosting housing supply, not limiting housing demand.
With population growing at the fastest rate in 40 years, boosting demand for homes, state and federal governments need to be focussed on ways to get more homes built. Barriers to housing investment need to be removed, and scrutiny needs to be applied to lifting land production and revising zoning laws.
The latest credit figures are encouraging. Housing lending continues to rise, including the investor market. And consumers are borrowing again. While business credit is still contracting, the good news is that equity investment has filled the gap.
The private sector credit figures are largely backward looking. But there is a sense that growth rates are bottoming and will gradually lift over 2010.
What do the figures show?
The RP Data-Rismark Hedonic Australian Home Value Index rose by 1.1 per cent in November, the 11th consecutive monthly gain. House prices rose by 1.0 per cent with unit (apartment) prices higher by 1.3 per cent.
Over the first 11 months of 2009 capital city home prices rose by 11.3 per cent with houses up 10.9 per cent and apartments up 12.5 per cent.
Over the past year, dwelling (home) prices were up 10.4 per cent with house prices up 9.9 per cent and apartment prices up 11.9 per cent.
In November, Darwin dwelling prices rose by 3.8 per cent followed by Melbourne (up 1.7 per cent), Sydney (up 1.6 per cent), Adelaide (up 1.1 per cent), Canberra (up 1.0 per cent) and Brisbane (up 0.3 per cent). Dwelling prices fell by 1.1 per cent in Perth.
In all capital cities home prices are higher than a year ago. Leading the way is Darwin with dwelling prices up 23.7 per cent while at the tail of the field, Adelaide and Perth dwelling prices are up 5.9 per cent.
RP Data-Rismark calculates the median capital city house price across Australia at a record high of $530,406 with the median unit value at $434,458.
The median Australian home price in all capital cities over the three months to end November was $439,800 (including houses and units). If all regions across Australia are included, RP Data-Rismark calculates that the national median dwelling price is $395,000.
Private sector credit rose by 0.1 per cent in November after falling by 0.1 per cent in October. The annual growth rate slowed from 1.2 per cent to a near 17-year low of 0.8 per cent (lowest since February 1993).
Housing credit grew by 0.7 per cent in November, taking annual growth to a 13-month high of 8.1 per cent. Owner-occupier housing rose by 0.8 per cent (10.0 per cent annual) with investor housing up 0.6 per cent (4.1 per cent annual). Personal credit rose by 0.3 per cent in November after a 0.5 per cent increase in October. Personal credit has fallen 1.9 per cent over the past year. And business credit fell by 1.0 per cent in November after sliding by 1.5 per cent in October. Business credit is down 8.2 per cent on a year ago, the weakest annual growth rate on record (records go back 30 years).
What is the importance of the economic data?
The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database including over 250,000 sales during the first 11 months of 2009. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.
The monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Quarterly results are measured comparing end months rather than averaging each month in the quarter. For example, the first quarter of 2009 index results compare the end of March index with the end of December index.
Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.
What are the implications for interest rates and investors?
The lift in home prices will boost wealth levels, with the potential to lift consumer confidence and spending. Around two-thirds of Australians either own their own homes outright or are paying them off. But the increase in wealth levels also makes it more likely that the Reserve Bank will continue to lift interest rates in the New Year.
The credit or lending figures are largely backward looking. However it is still clear that Corporate Australia is in the process of de-leveraging. That process is largely completed and business lending is likely to resume in 2010, especially in the second half of the year.
The main fear with the de-leveraging process is that businesses effectively under-gear, operating with less efficient balance sheet structures.
