Property prices cool over October: Gareth Aird
GUEST OBSERVER
Australian dwelling price growth has moderated over October. The latest CoreLogic RP Data figures show that dwelling prices rose by a small 0.2% over the month. House prices were up by 0.1% and units rose by 0.4%. Cooling house price growth fits in with other indicators of the housing market which show that the pace of activity is moderating.
A sizeable fall in dwelling prices in Perth over October was offset by rises across the other capital cities. Perth property prices are reflecting the combination of rising supply and vacancy rates at the same time as economic growth is slowing and population growth rate is falling.
Dwelling price growth looks to be cooling in Sydney while property price growth has remained buoyant in Melbourne despite plenty of additions to the stock of housing. For Melbourne, it’s all been about the lift in house prices as opposed to unit prices. House prices are running at 15.1%pa in Melbourne compared with 5.5% for apartments. The divergence is unusual and reflects the big lift in high‑rise construction over the past few years which has seen the available stock of apartments lift considerably against the stock of houses. This trend looks likely to continue given the pipeline of high‑rise construction to come.
There is nothing in today’s dwelling price data that looks surprising. Recent moves by the ‘big banks’ to lift mortgage rates were always going to have a cooling influence on the housing market. And they have come at a time when vacancy rates and rental yields are both falling and housing supply is lifting. The combination of the aforementioned means that dwelling price growth was always going to slow.
The question is really a matter of how much price growth will slow and the short answer is that we simply don’t know. In our view, running models to project dwelling price growth is too fanciful because there are too many moving parts that impact on dwelling prices.
One of the more accurate leading indicators of dwelling prices is auction clearance rates. These have been on a downward trend since record high levels mid‑year. So we expect to see some further moderation in dwelling prices over coming months, particularly given the small lift in mortgage rates which will ease the pace of credit growth, especially to investors.
One thing which could potentially reignite the housing market over the short run is a near term RBA interest rate cut, possibly as early as tomorrow. Market pricing is putting the odds of a Melbourne Cup day rate cut at around 40% and that looks about right to us. We have the RBA on hold at 2.0% tomorrow.
We don’t think that policymakers will be too perturbed by the easing in house price growth. Indeed, they will most likely welcome it. As recently as two weeks ago the RBA aired concerns around parts of the housing market in its semi‑annual Financial Stability Review. Last week’s private sector credit data showed a marked lift in business credit growth and an easing in housing credit growth which is exactly what policymakers have been looking for – a lift in business credit growth is a precursor to capital investment. So it looks like the different parts of the credit space are moving in the directions that policymaker’s desire.
Gareth Aird is economist at Commonwealth Bank and can be contacted here.
