House Price Growth Set To Fall – Fitch

Fitch Ratings “Global Housing and Mortgage Outlook” suggests House price growth is expected to moderate across the Asia-Pacific region in 2015, driven by government regulatory pressures, tightened affordability and gradual interest-rate rises. The growth slowdown will be led by Australia, where national house prices are forecast to rise 4% in 2015, down from 7% in 2014, and in Hong Kong, where Fitch expects prices to be flat as compared to the 10% growth in 2014.

These forecasts are featured in Fitch’s latest Global Housing and Mortgage Outlook, published on 14 January. Of the six APAC countries included in the report, only Korea is expected to have price gains that exceed that in 2014; even then, it is forecast to be just 2%.

Australia will see house-price increases slow in 2015, down to 3%-4% in Sydney and Melbourne, and flat in Perth. Affordability pressures will remain in Australia’s largest cities, with price rises continuing to outstrip income growth, and home prices approaching the affordability ceiling. Lending volumes will continue to grow as investment activity is expected to remain high; investment loans are expected to continue to account for 50% of new lending. That said, as rental yields drop to less than 3.5%, Fitch stresses that housing investors’ buying sentiment could be vulnerable to weakening if other asset classes offer better returns.

Government policy action, pressured affordability and the likelihood of interest-rate rises in the long term will continue to be key themes for the housing and mortgage outlook in the APAC region. A gradual increase in mortgage rates is expected in 2015 and 2016 in Australia, New Zealand, Hong Kong and Singapore, all of which show relatively high interest rate sensitivity. At the same time, governments and regulatory authorities are targeting soft landings for the housing market in several economies including New Zealand, Hong Kong and Singapore, which have seen rapid price growth over the past decade.

Hong Kong is a case in point, where Fitch believes macro-prudential measures will lead to a marked slowdown in price growth. Home prices are forecast to be to be flat this year versus a 10% increase in 2014, and an average gain of 15% over the previous decade. The government’s cooling measures should stabilise affordability at current levels, though home prices already are highly stretched relative to incomes. Fitch maintains that Hong Kong does risk a downturn, considering the combination of the stretched affordability, rising rates, and the large involvement of speculative investments in the sector.

Similar macro-prudential measures in Singapore and New Zealand are having the desired impact on markets by dampening house price movements.

Singapore and Australia, Japan and South Korea are expected to see government measures to support the housing sector, in contrast to Hong Kong.

Building Approvals Rise in November

The ABS released their Building Approvals data for November. Approvals for apartments rose significantly, whilst private sector housing fell.

The trend estimate for total dwellings approved rose 0.2% in November and has risen for six months. The seasonally adjusted estimate for total dwellings approved rose 7.5% in November and has risen for two months.

The trend estimate for private sector houses approved fell 0.3% in November and has fallen for eight months. The seasonally adjusted estimate for private sector houses fell 0.3% in November and has fallen for three months.

The trend estimate for private sector dwellings excluding houses rose 1.0% in November and has risen for six months. The seasonally adjusted estimate for private sector dwellings excluding houses rose 16.7% in November and has risen for two months.

The trend estimate of the value of total building approved fell 0.7% in November and has fallen for 12 months. The value of residential building fell 0.5% and has fallen for five months. The value of non-residential building fell 1.0% following a rise of 0.5% in the previous month. The seasonally adjusted estimate of the value of total building approved rose 19.6% in November and has risen for two months. The value of residential building rose 15.3% and has risen for two months. The value of non-residential building rose 29.7% following a fall of 13.1% in the previous month.

Unemployment Drops to 6.1%

Australia’s seasonally adjusted unemployment rate decreased 0.1 percentage points from a revised November 2014 estimate to 6.1 per cent in December 2014, as announced by the Australian Bureau of Statistics (ABS) today.

The seasonally adjusted labour force participation rate increased by less than 0.1 percentage points to 64.8 per cent in December 2014.

The ABS reported the number of people employed increased by 37,400 to 11,679,400 in December 2014 (seasonally adjusted). The increase in employment was driven by increased full-time employment for both females (up 23,300) and males (up 18,200). The increase in full-time employment was marginally offset by a fall in part-time employment, down 4,100.

The ABS seasonally adjusted aggregate monthly hours worked series decreased in December 2014, down 7.7 million hours (0.5%) to 1,597.8 million hours.

The seasonally adjusted number of people unemployed decreased by 16,200 to 759,200 in December 2014, the ABS reported.

This is better than the 6.3% analysts had expected. It continues to show the data series is volatile.

More First Time Buyers Are Jumping Directly Into Investment Property

The traditional wisdom is that First Time Buyers are sitting out of the property markets, because prices are high, loans harder to get, and confidence is falling. Overall 11.6% of owner occupied loans are from FTB. We can look at the trend, showing the number of first time buyer loans each month, and the relative share compared with all owner occupied loans

FTBTrendNov2014The latest ABS data highlights the fact that in some states, especially NSW, FTB activity is very low (7%), whereas in WA its over 20% of owner occupied loans.

FTBSTATEShareTrendNov2014If we look at the relative share of FTB transactions we see that there are more FTB loans being written in WA and VIC than NSW.

FTBStateTrendsPCNov2014But this is not the full story. As we already highlighted our household surveys have detected a significant rise in the number of FTB who are going directly into the investment market. We can estimate the proportion of FTB who are taking this route, using DFA data.

FTBNov2014InvNow, if we make adjustments to the ABS data to take account of the trend we see that FTB are more active than might be thought. In fact the rate of activity has remained at about 9,500 loans each month since mid 2013. Its just that the ABS data does not capture the full statistics.


Australian Retail Ecommerce Sales to Top $10 Billion in 2015

According to eMarketer’s latest estimates of retail sales, Retail ecommerce sales in Australia will rise 14.4% this year to pass $10 billion. In 2014, ecommerce sales in the country increased 17.3% to account for over 4% of total retail sales, and that share will expand to 4.5% in 2015. Low double-digit gains will continue through 2017, and by the end of the forecast period, retail ecommerce sales will total $14.52 billion and represent 5.6% of retail sales in the country.

Australia falls in the middle of the pack in both absolute terms and percentage of total retail ecommerce sales when compared with the other Asia-Pacific countries, behind China, Japan and South Korea and ahead of India and Indonesia.

Interestingly, digital buyer penetration among internet users in Australia is the second highest in Asia-Pacific. eMarketer estimates that 79.4% of internet users in the country will purchase via any digital channel this year, behind only Japan (82.0% penetration). Due to its size, though, Australia has the smallest digital buyer population in Asia-Pacific, at 12.1 million.

Australia’s ecommerce landscape is crowded with international competitors—especially eBay-owned properties—according to October 2014 data from Experian Hitwise Australia. eBay Australia catalogued the highest number of visits, 23.1 million, during the week examined, accounting for 12.9% of retail site visits during that timeframe. The local edition of eBay-owned classifieds site Gumtree was second with 13.3 million visits and a 7.4% share, followed by eBay with 13.2 million for a 7.4% share, and Amazon with 11.6 million for a 6.5% share. [Note: The Australian version of Amazon’s site,, sells only ebooks.]

The remaining top 10 ecommerce sites, with visitor shares of around 1% or less, included user-supported deals-posting site OzBargain, consumer electronics retailer JB Hi-Fi Australia and hardware chain Bunnings Warehouse, Apple’s site, Alibaba Group-owned discounts site AliExpress and department store chain Target Australia. The list reflects a landscape dominated by consumer-to-consumer resale sites, alongside options for business-to-consumer transactions.

Investors Still Leading The Way

The ABS published their housing finance data today for November 2014. Comparing October to November, the trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.6%. Investment housing commitments rose 0.9% and owner occupied housing commitments rose 0.5%.

However, in seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions fell 1.0%.

In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 11.6% in November 2014 from 11.4% in October 2014.

In trend terms, the number of commitments for owner occupied housing finance was flat in November 2014. In trend terms, the number of commitments for the purchase of established dwellings was flat and the number of commitments for the construction of dwellings rose 0.2%, while the number of commitments for the purchase of new dwellings fell 0.5%.

Construction Falls In December

Data released today shows that the construction sector fell again in December.

The national construction industry continued to exhibit substantial weakness in December 2012. The overall rate of contraction eased for a third consecutive month in response to slower declines in activity and new orders. The seasonally adjusted Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 1.8 points in December to 38.8. The index has now remained below the critical 50 points level (that separates expansion from contraction) for 31 consecutive months.

By sector, commercial construction activity contracted at its slowest pace in just over two years, while the rate of decline in engineering construction again eased during the month. In contrast, house building activity declined at its steepest rate in three months amid weaker new orders. Apartment building activity also moved further into negative territory.

Businesses reporting declines in activity mainly attributed this to tight credit conditions, strong competition for existing work and uncertainty about the economic outlook. A number of reports from house builders indicated that the weakness in demand was marked by a reduction in home buyer enquiries and a lack of commitment from potential purchasers.

Apartment building turned down sharply to the lowest level in the past 16 months.

The Australian Industry Group Performance of Construction Index (Australian PCI®) in conjunction with the Housing Industry Association, is a national composite index based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights.

Q4 Capital City Rentals Static

CoreLogic RP Data just released their rental data to December 2014. Over the 2014 calendar year, advertised rental rates on a national basis increased by 2.6 per cent for both houses and units. At a capital city level, the rental performance across the different housing stocks was more varied. House rents rose by 1.2 per cent over the year, while unit rents outperformed the detached housing market, up 2.5 per cent over the 12 months to December 2014.

RPDataRentalsDec2014Quarterly movements. Capital city advertised rents remained unchanged over the final quarter of 2014, with house rents steady at $430 per week and unit rents recorded at $410 per week. Across Australia, house rents increased by 1.3 per cent to $400 per week, while unit rents were unchanged over the three months to December at $390 per week.

For houses, the performance across each individual capital city market was varied. Hobart houses saw rents rise by the most, up 5.4 per cent over the three month period, while Brisbane (2.5 per cent), Adelaide (1.4 per cent), Canberra (1.1 per cent) and Sydney (1.0 per cent) saw rents rise by a more moderate amount. Perth (-2.2 per cent) and Darwin (-0.8 per cent) were the weakest performing rental markets for houses over the three month period. Melbourne was the only capital city market to record no change, with weekly rents for houses stable at $385 per week. The performance across the unit market at a capital city level was somewhat weaker. Hobart (1.8 per cent) and Brisbane (1.3 per cent) were the only capital cities in which rents rose over the three months to December, while all other cities saw rents fall over the last quarter of 2014 with the exception of Adelaide and Canberra where no change was recorded.

Annual movements. Nationally, advertised rents are 2.6 per cent higher than they were in December 2013 for both houses and units, while across the combined capital cities house rents have risen by 1.2 per cent, compared to a stronger level of growth for unit rents which rose by 2.5 per cent. Over the year to December 2014, for houses, the strongest performing capital city market in terms of rental increases was Hobart, where the median advertised weekly rental rate was 3.8 per cent higher. Sydney, Adelaide (both 2.9 per cent), Brisbane (2.5 per cent) and Melbourne (1.3 per cent) all had rents higher in December 2014 when compared to December 2013. Perth (-6.3 per cent) and Canberra (-5.0 per cent) were by far the weakest performing capital city markets for growth in advertised house rents.

Similar to houses, Canberra (-7.3 per cent) and Perth (-4.4 per cent) were the weakest performers amongst the capital city unit rental markets and were the only two cities to see rents fall over 2014. Unit rents for both Adelaide and Darwin remained unchanged over the year, while Hobart (3.7 per cent) and Sydney (3.1 per cent) were the strongest performers.

Retail Trade Up In November

The latest ABS Retail Trade figures show that Australian retail turnover rose 0.1 per cent in November, seasonally adjusted, following a rise of 0.4 per cent in October 2014.

In seasonally adjusted terms food retailing rose 0.6 per cent or $56.3 million in turnover. Other industries which experienced rises were cafes, restaurants and takeaway food services (0.8 per cent) and household goods retailing (0.6 per cent). Department stores remained relatively unchanged (0.0 per cent). This was partially offset by falls in other retailing (-2.1 per cent) and clothing, footwear and personal accessory retailing (-0.7 per cent).

In seasonally adjusted terms the states which displayed rises were Victoria (0.4 per cent), South Australia (0.4 per cent), the Australian Capital Territory (1.3 per cent), Tasmania (1.1 per cent), the Northern Territory (1.6 per cent) and Queensland (0.1 per cent). This was partially offset by falls in New South Wales (-0.2 per cent) and Western Australia (-0.1 per cent).

The trend estimate for Australian retail turnover rose 0.4 per cent in November 2014. Through the year, the trend estimate rose 4.5 per cent in November 2014 compared to November 2013.

Total online retail trade, in original terms, rose 5.2 percent in November following a rise of 9.8 per cent in October 2014 and a rise of 8.7 per cent in September 2014.

Will RBA Change Rates in 2015?

Until quite recently, there was something of a consensus that in 2015 the RBA was likely to lift rates, despite  their monthly mantra about a period of interest rate stability.  Some economists have argued that falling consumer confidence, slowing wage growth, and international uncertainty were all factors which would lead to lower rates, whilst on the other hand, the falling price of fuel at the pumps, and continued investment property demand might lead to higher rates.

So, interesting then that today the Commonwealth Bank of Australia  (CBA) released a note in which they have pushed out any rate rise expectations into the first quarter of 2016. In the interim period, they say, the cash rate will most likely stay at current levels – at 2.5% – the rate it has been for well over a year now. They suggest that a cut to the current low rate is unlikely, because the falling dollar and oil prices will stop the RBA dropping rates further. Previously, the CBA had been suggesting a rise in 2015 was likely.

The CBA said, a rate cut wouldn’t necessarily help produce the confidence and the stability the RBA is seeking:

“It appears that households and business now equate rate cuts with ‘bad’ economic news.”

The bank thinks a cash rate of 3.5 per cent by the end of 2016 is quite likely.