Home prices hit record highs across half of Australia despite COVID-19: Craig James
EXPERT INSIGHT
The first indicators for 2021 – home prices and manufacturing activity – are exhibiting signs of economic strength, rather than weakness.
Home prices are rising across the country. In fact home prices only fell in two of the 88 regions in the past month. And over the past year all but 12 regions posted gains in home prices. The icing on the cake: data shows that in 39 of the 88 regions, home prices were at record highs at the end of 2020.
The outback regions of South Australia and the Northern Territory as well as the mid to far north coast regions of NSW were amongst those posting the strongest home price gains in December. The Sydney Eastern Suburbs (down 0.1 per cent) and Far West and Orana region of NSW (-0.4 per cent) were the only two regions to record falls in home prices in December.
Regional home prices continue to outpace capital cities and house prices are out-pacing apartment prices. Both reflect Covid-19 effects, especially the new reality that work can be done anywhere and at any time.
The manufacturing sector is expanding solidly. In fact many companies reported that “backlogs of work had risen simply due to a short-term inability to expand production capacity sufficiently to meet the recent surge in demand.” And further, “efforts to boost capacity were reflected in manufacturers taking on extra staff at a rate not seen for just over two years.”
What do the figures show?
Home prices – December 2020
The CoreLogic Home Value Index of national home prices rose by 1.0 per cent in December to be 3.0 per cent higher over the year.
In capital cities, prices rose by 0.9 per cent to be up 2.0 per cent over the year. House prices climbed 1.1 per cent, but apartment prices rose by just 0.2 per cent. House prices were up 2.6 per cent on a year ago and prices of apartments increased by 0.2 per cent.
In regional areas, home prices jumped 1.6 per cent with house prices up 1.7 per cent and apartment prices up by 1.1 per cent. Regional home prices were up 6.9 per cent on the year with houses lifting 7.1 per cent and apartments up 5.9 per cent.
The average Australian capital city house price (median price) in December was $696,413 and the average unit price was $574,388.
Home prices were higher in all eight capital cities in December: Sydney (+0.7 per cent); Melbourne (+1.0 per cent); Brisbane (+1.1 per cent); Adelaide (+1.1 per cent); Perth (+1.1 per cent); Hobart (+0.7 per cent); Darwin (+2.3 per cent); Canberra (+0.6 per cent).
Home prices were higher than a year ago in seven of the eight capital cities in December: Sydney (+2.7 per cent); Melbourne (-1.3 per cent); Brisbane (+3.6 per cent); Adelaide (+5.9 per cent); Perth (+2.0 per cent); Hobart (+7.7 per cent); Darwin (+11.9 per cent); Canberra (+8.5 per cent).
Total returns on national dwellings rose by 6.6 per cent in the year to December with houses up 7.1 per cent and units up by 5.0 per cent on a year earlier. In contrast, the S&P/ASX All Ordinaries Accumulation Index rose by 3.6 per cent over the year to December.
What are the implications for investors?
Higher home prices boost household wealth and also serve to boost borrowing capacity. As such the lift in home prices is positive for consumer durables including demand for cars.
CoreLogic reports that annual home sales were around 8 per cent higher over 2020. CoreLogic notes: “More home sales implies more work for a range of industries including real estate professionals, removalists, conveyancers, financiers and building inspectors along with more spending on household goods such as home furnishings, white goods and appliances.”
The strength in manufacturing is positive for employment and related sectors such as retailing. The increases in input prices and selling prices need to be watched though.
Risks to the housing market – prices, sales and building – include policy mistakes, the scaledown of JobKeeper and JobSeeker, new waves of virus infection and the length of time that foreign borders stay closed.
CRAIG JAMES is the Chief Economist at CommSec
