3 Changes in the Property Market Landscape
From consumer, to investors, central bank and government, housing market has been one of the most important topics of discussion. The rate cuts, RBA missing the inflation target and turnaround through auction clearance can have ripple effect! So, come let’s have a look at the three most essential developments made recently in the housing market.
Auction clearances bring a turnaround in Australian property market
Australia continued to show a sign of turnaround in housing market, with the improved preliminary clearance rate despite the lower volume of auctions on weekly data.
Property market analyst, CoreLogic reported a continued rise in auction clearance rates this week. Yes, the auction volume might not have worked in the favour of Australian housing market but there has been sharp increase in the clearance rate.
As per CoreLogic’s latest article dated 9 September 2019, the clearance rate of auctions in capital cities has increased to 77% on auction of 1,529 homes taken this week, compared to the clearance rate of 70% last week on the auction volume of 1,615 homes. The capital cities of Australia include Sydney, Melbourne, Brisbane, Adelaide, Perth, Tasmania and Canberra.
The number tell that this time last year, final clearance rate was just 55.3% while 1,916 auctions were held across the capital cities.
Melbourne hosted 769 auctions this week, returning a clearance rate of 76.6% in comparison to a clearance rate of 60% over same week last year that was recorded across 891 auctions. Sydney recorded a clearance rate of 83.1% on 522 auctions taken this week while exactly a year back, clearance rate stood at 50.6% in Sydney across 656 auctions held.
On this note, senior analysts stated that the rise in clearance rate could not be linked to desperate buyers. In a media report, Mr Wiltshire, who was formerly at the Reserve Bank and the Grattan Institute, expressed his views on auctions volume having no direct correlation with the clearance rates. That means if the clearance rates have improved, it’s not because of the property crunch but rather because of the uniqueness and importance of the property.
Government demands RBA to explain slow economic growth
RBA Governor Philip Lowe will have to report Treasurer Josh Frydenberg on why the central bank has missed its inflation target, as per a media report.
Inflation in Australia is currently running at 1.6%, below the RBA’s target range of 2-3%, on average, over time. Government’s demand to have explanation from central bank in writing for why they missed the inflation target range is likely to build pressure on rate cut further. That means central bank might get more aggressive on cutting interest rate, adding to the two consecutive cuts announced in June and July that has led the interest rate to presently stand at 1%.
Well, that seems to be quite a good news for Australian economy as the world is heading towards low interest rates, low inflation and relatively low unemployment. Central Bank measures to cut interest rates is strategized to stimulate consumption and push inflation back up to within its target range.
The current target range of the country’s inflation rate reflects an inflation rate at low level which does not materially distort economic decisions in the community and also serve as an anchor for private-sector on their inflation expectations.
Both Government and Reserve Bank of Australia (RBA) are closely working to come up with a new agreement wherein the arrangement would be made to ensure that inflation continues to stand where RBA and government wants it to be.
In the minutes of monetary policy meeting, Reserve Bank of Australia has pitched its projection for lower GDP growth over 2019. The central bank has predicted a decline of 2.5% for 2019 and has shown optimism for upcoming years, with growth expected to 2.75% over 2020 and to around 3% over 2021.
To have a better understanding of Australian Monetary Policy, please click here.
Is Australia nearing Housing Price Bubble?
Last, but the most important point here is that pressuring the central bank might just form a housing bubble!
Reserve Bank of Australia believes that recovery in housing market has a potential to dissipate the dampening effect of declining housing prices on consumption, compared to the prediction made earlier. But would the likely upswing in housing prices last long or is it going to be the next housing prices bubble in Australia that might burst in short-to-midterm?
As per the Australian Bureau of Statistics (ABS) data price index for residential properties has fallen 3.0% in March quarter 2019 that includes the weighted average of the eight capital cities. Sydney prices fell 3.9%, Melbourne 3.8% and Brisbane 1.5% during the quarter. Overall, the index has declined 7.4% through the year to the March quarter 2019.
But now the housing prices are taking a turnaround supported by outstanding improvement in clearance rate and two back-to-back rate cuts announced by RBA. The impressive performance of properties in Australia’s two largest cities- Sydney and Melbourne-has expanded the dwelling value at an annualised pace north of 6% over the last quarter.
Lending to Households Rises Second Month In a Row
As per the latest update released by the Australian Bureau of Statistics (ABS) on Monday, 9 September 2019, the value of new lending commitments to households has increased by 3.9% in July 2019, which follows a 1.9% rise in June 2019.
The figure indicates the growth in new lending commitments to households and businesses that has increased for the second month in a line. In July, the rise in new lending has been strongest since October 2014, told Chief Economist of ABS Bruce Hockman.
Mr Hockman further informed that the growth was particularly supported by the increased level of new lending for investment dwellings, which rose 4.7% in July. The growth in the value of lending for owner occupier dwellings has been another important pillar to new lending commitments as it achieved an increase of 5.3% nationally in July, with significant growth in all territories and states apart from Tasmania.
The report read that the number of loans owner occupier first home buyers grew again in July, which marks the fourth consecutive month, up 1.3%. This was further outpaced by an increase of 4.0% in the number of loans to non-first home buyers, that’s a rise for the first time in seven months.
But Personal finance has fallen 2.6% in July, moving against the rise of 5.0% reported in June. The value of new lending commitments to businesses has also declined 1.3% in July 2019, but the figure has managed to achieve an upside of 1.5% on July 2018.
How is the Needle Moving on Some Top Housing Sector Stocks?
Goodman Group (ASX: GMG)- GMG stock price last traded at $13.665, down 1.336%, on 10 September 2019. The stock closed at a price to earnings multiple of 15.410x with a market capitalisation of $25.32 billion.
Charter Hall Group (ASX: CHC)- The stock continued he bearish trend on Tuesday and closed at $11.800, down 1.749%, on 10 September 2019. CHC stock closed at a price to earnings multiple of 23.780x with a market capitalisation of $5.59 billion.
Aveo Group (ASX: AOG)- The stock traded flat and closed at $2.130, with a daily volume change of 929,018. Over the past 12 months, the stock has decline 6.17%, including a drop of 0.93% in the past three months.
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