CBA Expects an Upsurge in Property Prices to Continue in 1H 2020

The home buying spending intention readings, announced under the CBA’s monthly Household Spending Intentions (HSI) series demonstrated that a pick-up in property prices in 2^nd half of 2019 will continue into the first half of 2020.

Combining the Australians’ spending data with Google Trends publicly available search activity, CBA’s HSI series is targeted to provide an early indication of prospective spending trends.

In addition to possessing the potential to offer a future lens into specific industries, the HIS series provides a holistic view on the changing spending behaviours of Australians and the possible implications for the economy.

As indicated in the above figure, the home spending buying intentions have improved substantially after July 2019, providing an encouraging sign that the economic drag from falling residential construction is nearing an end.

It can be observed that the second half of 2019 was very promising for the Australian property market, which recovered considerably from a downfall in late 2018 and early 2019.

Property Prices Saw Major Quarterly Gain in Dec 2019 Qtr

The recently announced house prices data by CoreLogic seems to support the CBA’s home buying intentions series.

The property prices data released by the property consultant showed that the nation observed its biggest quarterly gain since November 2009 in the last quarter of 2019, marking a 4 per cent rise over the period.

Moreover, the prices rebounded significantly in Sydney and Melbourne, improving by 1.7 per cent and 1.4 per cent, respectively. The housing market also saw a fast-pace growth in prices in December 2019, during which the property values surged by 1.1 per cent.

The data revealed by the property consultant also demonstrated a 2.3 per cent rise in dwelling values in 2019 on an annual basis, supported by an increase of 5.3 per cent each in Sydney and Melbourne. Though the values rebounded strongly in the second half of 2019, they are still around 3 per cent below the peak level reached in October 2017.

However, it is worth noting that the 2019-end was a complete turnaround from the market analysts’ early-2019 projections of a further fall in property prices.

The improvement in dwelling values seems to be largely driven by the loosening of lending curbs by APRA and record-low interest rates prevailing in the nation.

Housing Market May Create Wealth Effect, Says CBA

According to the CBA, the surge in home buying intentions series shows that there are certain early signs of a ‘wealth effect’ from the property market backing spending on travel, entertainment and motor vehicles (from an extremely low level).

The latest HSI data demonstrated that travel spending intentions resumed to look higher in Australia in December 2019.

However, the HIS readings remain volatile as deadly bushfires are having an adverse effect on travel intentions.

Some recent google trends have disclosed that accommodation hunts in areas affected by fire (on the south and north coast of New South Wales) are falling away.

Moreover, the HSI data showcased a rapid improvement in entertainment spending intentions in December, which further shows that there is a rising consumer preference for spending on "experiences" as opposed to spending on "stuff".

On the other hand, though the buying intentions for motor vehicles largely remained soft, the slow improvement noticeable in recent months sharply accelerated on the recent readings. The CBA considers this outcome to be significant as RBA’s research has discovered that the motor vehicles spending is the most sensitive to fluctuations in wealth.

The RBA has often referenced how the higher house prices creating wealth effect, will lead to a significant pick up in car sales. In a research report declared last year, the RBA mentioned that a 1 per cent rise in housing wealth improved expenditure on motor vehicles by 0.6 per cent.

The CBA expects the housing market to create a positive wealth effect, boosting spending on all these three indicators in the months ahead.

It is imperative to note that though spending intentions improved for these indicators, the retail intentions are still dragging.

The CBA’s retail household spending intentions depicted a flat trend in December despite the stimulus applied via tax rebates, interest rate cuts and the turn up in dwelling prices. Moreover, the "Black Friday" event lifted spending from December into November without certainly improving aggregate spending.

In a nutshell, the speculations for the property market remain largely optimistic amidst recent improvement in home buying intentions, dwelling approvals and property prices. It would be interesting to keep a watch on further happenings in the property market, which has been drawing massive spotlight in Australia owing to its interesting developments.

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