Global House Price Index Falls – IMF

The IMF Quarterly Update includes an update of the Global House Price Index.  In Australia, the aggregate house price index has been rising in a strong but volatile pattern for the past twenty-five years, and has enjoyed a particularly strong burst of growth since 2013. However, house prices in Perth—surrounded by major mining and petroleum industries and known for providing services to these industries—are declining.

After sixteen quarters of inching upwards, the global house price index shows a small downtick. But it is too soon to tell if this is a reversal in trend.

IMF-Apr-01Over the past year, many more countries have registered house price increases than declines. Australia is the eighth highest (well behind New Zealand!)

IMF-Apr-16-02Credit growth has also remained strong in many countries, though the overall correlation with house price growth at present is modest. Australia is twelfth, behind USA and Norway.

IMF-Apr-16-03Among OECD countries, house prices have grown faster than incomes ( Australia ninth highest) and rents since 2010 in about half the countries (Australia twelfth highest).

IMF-Apr-16-04IMF-Apr-16-05The decline in commodity prices does not seem to be affecting national house prices but is having some effect in regions and cities within countries.

IMF-Apr-16-06

 

 

Where To With Adelaide Home Prices?

As we continue our state by state analysis, today we look at South Australia.

In our base case to mid 2018, we expect to see the average house price in Adelaide rise by 0.8% to $446,000 and the average unit price in Adelaide rise by 5.9% to $371,000. In the regional areas, the average house price will fall by 7.0% to $256,000 and units will rise 1.1% to $208,000.

SA-Apr-2016---BaseIf economic activity picks up to mid 2018, we expect to see the average house price in Adelaide rise by 9.9% to $487,000 and the average unit price in Adelaide rise by 10.7% to $387,000. In the regional areas, the average house price will rise by 1.4% to $279,000 and units will rise 8.8% to $224,000.

SA-Apr-2016---UpIf economic activity slows to mid 2018, we expect to see the average house price in Adelaide fall by 10.3% to $397,000 and the average unit price in Adelaide fall by 7.1% to $325,000. In the regional areas, the average house price will fall by 18.1% to $226,000 and units will fall 11.9% to $182,000.

SA-Apr-2016---DownIf economic activity falls significantly to mid 2018, we expect to see the average house price in Adelaide fall by 26.7% to $324,000 and the average unit price in Adelaide fall by 22.2% to $272,000. In the regional areas, the average house price will fall by 33.1% to $184,000 and units will fall 25.8% to $153,000.

SA-Apr-2016---Fall  A reminder. This modelling is wrong, but is designed to illustrate the relative sensitivities in different scenarios!

 

Three Reasons Why RBA Might Hold Off Cutting Interest Rates Next Tuesday

From Business Insider.

Capital Economics has joined other major investment houses in deciding it believes the RBA is likely to cut the official cash rate to 1.75% next Tuesday.

There are a host of takes from economists here following this game-changing piece of data, but CE has the following dead-right summary of the handbrakes for the RBA board:

There are three plausible reasons why the RBA could ignore the plunge in underlying inflation and leave rates on hold at 2.0% at next week’s meeting, or perhaps even beyond. First, the Bank could continue to interpret low inflation as giving it the scope to cut rates in the future if demand falters. Second, lingering concerns about financial stability and the health of the housing market may mean the RBA is reluctant to cut rates again. Third, the RBA may want to wait to see what is announced in the Federal Budget, which will be released just five hours after the RBA’s decision.

The view that cutting interest rates might do more harm than good is starting to gain traction among many commentators. And senior people in central banks don’t work in an ideas vacuum.

Cutting rates again would send a very blunt signal that there are concerns about the health of the economy — not helpful when property prices in pockets of Australia are now starting to reverse as investment fever takes a reality check.

Then there’s the budget. Maybe Scott Morrison has something that will stir demand in store.

NZ Official Cash Rate unchanged at 2.25 percent

The Reserve Bank NZ today left the Official Cash Rate unchanged at 2.25 percent.

The outlook for global growth has deteriorated over recent months due to weaker growth in China and other emerging markets.  Prices for some commodities, including oil, have picked up but remain weak.

Monetary conditions are extremely accommodative internationally, with considerable quantitative easing and negative policy rates in some countries.  Financial market volatility has eased in recent weeks, but markets continue to watch closely the policy settings of major central banks.

Domestically, the economy is being supported by strong inward migration, construction activity, tourism, and accommodative monetary policy.  Dairy export prices have improved slightly, but are below break-even levels for most farmers.

The exchange rate remains higher than appropriate given New Zealand’s low commodity export prices.  A lower New Zealand dollar is desirable to boost tradables inflation and assist the tradables sector.

There are some indications that house price inflation in Auckland may be picking up.  House prices remain at very high levels and additional housing supply is needed.  Housing market pressures are building in some other regions.

There are many uncertainties around the outlook.  Internationally, these relate to the prospects for global growth, particularly around China, and the outlook for global financial markets.  The main domestic risks relate to weakness in the dairy sector, the decline in inflation expectations, the possibility of continued high net immigration, and pressures in the housing market.

Headline inflation remains low, mostly due to low fuel and other import prices.  Annual core inflation remains within the target range.  Long-term inflation expectations are well-anchored at 2 percent.  However, as we have previously noted, there has been a material decline in shorter-term expectations.

We expect inflation to strengthen as the effects of low oil prices drop out and as capacity pressures gradually build.  Monetary policy will continue to be accommodative.  Further policy easing may be required to ensure that future average inflation settles near the middle of the target range.  We will continue to watch closely the emerging flow of economic data.

Personal insolvency increased 1.5% in the March quarter 2016

The Australian Financial Security Authority (AFSA) released regional personal insolvency statistics for the March quarter 2016.

The number of debtors who entered a personal insolvency increased 1.5% in the March quarter 2016 compared to the December quarter 2015. The increase was driven by Queensland and Western Australia. The number of debtors who entered a personal insolvency in Queensland in the March quarter 2016 rose 5.1% compared to the December quarter 2015. The number of debtors in Western Australia in the March quarter 2016 rose 10.9% compared to the December quarter 2015.

New South Wales

·         Greater Sydney

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors fell 4.3%; the main contributors to the fall were Blacktown, Campbelltown and Bankstown
      • the number of debtors who entered a business related personal insolvency fell 10.4%; the main contributors to the fall were Wyong and Cronulla – Miranda – Caringbah.

·         Rest of NSW

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors fell 2.9%; the main contributors to the fall were Coffs Harbour and Wagga Wagga
      • the number of debtors who entered a business related personal insolvency rose 13.2%; the main contributors to the rise were Coffs Harbour and Newcastle.

Victoria

·         Greater Melbourne

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors rose 7.6%; the main contributor to the rise was Cardinia
      • the number of debtors who entered a business related personal insolvency fell 10.9%; the main contributors to the fall were Melton – Bacchus Marsh, Casey – South and Frankston.

·         Rest of Vic

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors fell 7.9%; the main contributors to the fall were Bendigo and Ballarat
      • the number of debtors who entered a business related personal insolvency fell 38.2%; the main contributor to the fall was Bendigo.

Queensland

·         Greater Brisbane

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors increased 2.3%; the main contributors to the increase were Ipswich Hinterland and Browns Plains
      • the number of debtors who entered a business related personal insolvency fell 6.1%; the main contributor to the fall was Holland Park – Yeronga.

·         Rest of Qld

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors increased 7.8%; the main contributor to the increase was Townsville
      • the number of debtors who entered a business related personal insolvency was stable at 262 debtors.

South Australia

·         Greater Adelaide

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors increased 0.3%; the main contributors to the rise were Salisbury and Adelaide Hills
      • the number of debtors who entered a business related personal insolvency fell 5.5%; the main contributor to the fall was Tea Tree Gully.

·         Rest of SA

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors fell 10.2%; the main contributors to the fall were Fleurieu – Kangaroo Island, Limestone Coast and Eyre Peninsula and South West
      • the number of debtors who entered a business related personal insolvency rose 21.4%.

Western Australia

·         Greater Perth

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors rose 13.1%; the main contributors to the increase were Rockingham and Wanneroo
      • the number of debtors who entered a business related personal insolvency fell 12.2%; the main contributors to the fall were Stirling, Mandurah and Joondalup.

·         Rest of WA

    • In the March quarter 2016 compared to the December quarter 2015:
      • the number of debtors increased 1.3%; the main contributor to the rise was Mid West
      • the number of debtors who entered a business related personal insolvency fell 23.5%.

Tasmania

  • In the March quarter 2016 compared to the December quarter 2015:
    • the number of debtors increased 11.5% in Greater Hobart; the main contributor to the rise was Hobart – North East
    • the number of debtors fell 14.9% in rest of Tas; the main contributors to the fall were Launceston and Devonport
    • the number of debtors who entered a business related personal insolvency in Tasmania fell 24.1%.

Northern Territory

  • In the March quarter 2016 compared to the December quarter 2015:
    • the number of debtors fell 16.1% in Greater Darwin; the main contributor to the fall was Darwin Suburbs
    • the number of debtors fell 52.2% in rest of NT; the main contributor to the fall was Alice Springs
    • the number of debtors who entered a business related personal insolvency in Northern Territory fell 28.6%.

Australian Capital Territory

  • In the March quarter 2016 compared to the December quarter 2015:
    • the number of debtors rose 8.5%; the main contributor to the increase was Gungahlin
    • the number of debtors who entered a business related personal insolvency rose 50.0%.

Personal insolvency in Australia: number of debtors per state/territory

https://www.afsa.gov.au/resources/statistics/regional-statistics/regional-statistics-images/march-quarter-2016/personal-insolvency-in-australia-number-of-debtors-per-state-territory

 

Where To For Perth Home Prices?

We continue our series of home price modelling by state. Today we look at WA. You can read about our modelling and scenarios.

In our base case to mid 2018, we expect to see the average house price in Perth fall by 1.4% to $528,000 and the average unit price in Perth rise by 0.7% to $438,000. In the regional areas, the average house price will fall by 14.6% to $312,000 and units will fall 5.3% to $279,000.

WA-April-2016---BaseIf economic activity  picks up to mid 2018, we expect to see the average house price in Perth rise by 10.1% to $589,000 and the average unit price in Perth rise by 9.5% to $477,000. In the regional areas, the average house price will fall by 2.3% to $357,000 and units will fall 5.6% to $279,500.

WA-April-2016---UpIf economic activity slows to mid 2018, we expect to see the average house price in Perth fall by 12.6% to $467,000 and the average unit price in Perth fall by 11.2% to $386,000. In the regional areas, the average house price will fall by 23.6% to $279,000 and units will fall 14.8% to $251,000.

WA-April-2016---DownIf economic activity falls significantly to mid 2018, we expect to see the average house price in Perth fall by 27.9% to $386,000 and the average unit price in Perth fall by 20.1% to $347,000. In the regional areas, the average house price will fall by 35.0% to $237,000 and units will fall 29.4% to $208,000.

WA-April-2016---SevereThis shows the WA market is quite fragile, despite considerable construction momentum, and interest from first time buyers. The modelling is designed to show relative sensitivity rather than making absolute predictions.

 

 

Consumer Price Index falls 0.2 per cent

The Consumer Price Index (CPI) fell 0.2 per cent in the March quarter 2016 according to latest figures from the Australian Bureau of Statistics (ABS).

This follows a rise of 0.4 per cent in the December quarter 2015.

The CPI rose 1.3 per cent through the year to the March quarter 2016, following a rise of 1.7 per cent through the year to the December quarter 2015.

The fall in the CPI this quarter was broad based, with six out of the eleven CPI groups recording a fall for the quarter.

The most significant fall occurred in transport (–2.5 per cent), due to automotive fuel (–10.0 per cent) falling for the third consecutive quarter.

Recreation and culture (–1.0 per cent) was the second most significant contributor, with falls in both international holiday travel and accommodation (–2.0 per cent) and domestic holiday travel and accommodation (–1.9 per cent).

Food and non–alcoholic beverages (–0.2 per cent) also fell this quarter, with fruit (–11.1 per cent) providing the most significant contribution.

These falls were partially offset by rises in secondary education (+4.6 per cent), medical and hospital services (+1.6 per cent) and pharmaceutical products (+4.8 per cent).

Where To With Brisbane Home Prices?

Continuing our modelling of future home prices, as described in our earlier post, today we look at QLD and run the analysis against our various scenarios.

In our base case to mid 2018, we expect to see the average house price in Brisbane fall by 3.9% to $481,000 and the average unit price in Brisbane fall by 6.2% to $372,000. In the regional areas, the average house price will fall by 7.6% to $388,000 and units will rise 0.7% to $353,000.

QLD-Based-Apr-2016If economic activity picks up to mid 2018, we expect to see the average house price in Brisbane rise by 5.3% to $526,000 and the average unit price in Brisbane rise by 0.6% to $399,000. In the regional areas, the average house price will fall by 5.9% to $395,000 and units will rise 7.9% to $378,000.

QLD-Up-Apr-2016If economic activity slows to mid 2018, we expect to see the average house price in Brisbane fall by 14.6% to $427,000 and the average unit price in Brisbane fall by 20.1% to $317,000. In the regional areas, the average house price will fall by 18.9% to $340,000 and units will fall 12.4% to $307,000.

QLD-Down-Apr-2016Finally, if economic activity falls significantly to mid 2018, we expect to see the average house price in Brisbane fall by 21.7% to $391,000 and the average unit price in Brisbane fall by 29.5% to $280,000. In the regional areas, the average house price will fall by 29.2% to $297,000 and units will fall 24.6% to $264,000.

QLD-Fall-Apr-2016Essentially, regional areas in QLD are more exposed to economic down turns than Brisbane. Also, investment property purchases are a large proportion of transactions, and these are very sensitive to economic variables. Whilst this modelling will be wrong, it does give an indication of relative sensitives.

Tomorrow we will look at Western Australia.

 

Grattan Institute Defends Negative Gearing Reform

Long overdue changes to negative gearing and capital gains tax would save the Commonwealth Government about $5.3 billion a year, according to a new Grattan Institute report.

Hot property: negative gearing and capital gains tax reform shows that the interaction of a fifty per cent capital gains tax discount with negative gearing distorts investment decisions, makes housing markets more volatile and reduces home ownership.

The two measures in combination allow investors to reduce and defer personal income tax, at an annual cost of $11.7 billion to the public purse. Other taxes, which often drag more on the economy than a capital gains tax does, must be higher as a result.

And like most tax concessions, these tax breaks largely benefit the wealthy.

Gtattan-NegativeThe report recommends that the capital gains tax discount should be reduced from 50 to 25 per cent, and that negatively geared investors should no longer be allowed to deduct losses on their investments from labour income.

A smaller discount would save about $3.7 billion a year, while the change to negative gearing would raise $2 billion a year in the short term, falling to $1.6 billion as losses start to be written off against positive investment income.

The reforms would provide relief to the Budget in tough times and slightly improve housing affordability with little impact on how much people save, says Grattan CEO and report co-author John Daley.

‘We estimate property prices would be up to two per cent lower under these reforms than they would be otherwise,’ Mr Daley says.

‘Contrary to urban myth, rents won’t change much, nor will housing markets collapse. The effects on property prices would be small compared to factors such as interest rates and the supply of land.’

The report recommends phasing in the reforms, to make them easier to sell and to prevent a rush of investors selling property before the changes come into force.

While other proposals, such as restricting negative gearing to new properties or limiting the dollar value of deductions, would improve the current regime, they nevertheless leave too many problems in place and introduce unnecessary distortions.

‘These two sensible reforms won’t hurt private savings much but will save the government a lot of money,’ Mr Daley says.

Read the report

Where to With Melbourne Home Prices?

Continuing our econometric modelling of home prices trends, today we examine Melbourne. As we discussed our model takes account of a range of factors and runs a series of future scenarios out to mid 2018.  We look at prices both within Melbourne and also across the state and split the analysis into houses and units.

In our base case to mid 2018, we expect to see the average house price in Melbourne rise by 2.8% to $639,000 and the average unit in Melbourne fall by 15.1% to $429,000. In regional areas, the average house price will rise 3.5% to $321,000 and units will fall by 0.4% to $260,000. The oversupply of units in the CBD explain the projected price falls.

VIC-APril-2016---BaseIf economic momentum becomes stronger, to mid 2018, the average house price in Melbourne will rise by 5.1% to $653,000 and the average unit in Melbourne will fall by 5.7% to $476,000. In regional areas, the average house price will rise 3.4% to $337,000 and units will rise by 7.9% to $282,000. The rise in Melbourne will continue despite lower demand for investment property and static incomes. Over supply of units in the CBD will depress unit prices.

VIC-April-2016---UpturnIf economic momentum falls, to mid 2018, we expect to see the average house price in Melbourne fall by 11.6% to $549,000 and the average unit in Melbourne fall by 25.2% to $378,000. In regional areas, the average house price will fall 10.6% to $277,000 and units will fall by 12.6% to $228,000. In this scenario, growth remains low, unemployment moves higher, incomes remain flat, and demand for property slows.

VIC-April-2016---Mild-DownIf economic momentum falls significantly, to mid 2018, we expect to see the average house price in Melbourne fall by 29.2% to $439,000 and the average unit in Melbourne fall by 38.4% to $311,000. In regional areas, the average house price will fall 28% to $223,000 and units will fall by 18.8% to $221,000. In this scenario, cash interest rates are cut further, unemployment rises, income falls in real terms, and demand for property falters.   This is our Armageddon scenario.

VIC-April-2016---SevereeWe see that the main area of risk centres on units in Melbourne, especially those within the CBD and surrounds. Supply is rising fast, at a time when demand is not matched.

And a caveat, this modelling will be wrong, but it does give an indication of relative sensitives. Next time we will look at Brisbane and QLD.