This article is from the Australian Property Journal archive
Australian house prices appear to have stabilised in the first quarter despite more revisions to the back-data.
House prices rose 1%q/q in the first quarter after rebounding 2.2% in the fourth quarter – previously 2.1%q/q – and falling 0.2% in the third quarter – previously reported as a 0.0% last quarter, and -1.0% in the initial release.
Constant data revisions aside, the index measuring the weighted average of the eight capital cities rose to 3.6%oya – from 2.2%oya in the fourth – thanks to a low base in March 2005.
Once you scratch the surface, however, large region divergences appear.
All the East Coast cities underperformed in first quarte and the national number was again driven higher by super-normal growth in Perth, Darwin and Hobart.
Six of the eight capital cities reported gains in nominal house prices in the March quarter.
The price pattern across the capital cities suggests that the larger east coast cities, where the evidence of oversupply is most convincing, are still struggling to regain a strong footing.
Sydney prices dropped 1.2% in the first quarter, Brisbane median house prices were unchanged, and Melbourne and Canberra reported relatively small rises of just 0.8% and 0.2% respectively.
The national figure was again driven by robust price gains in the smaller cities.
House prices in Sydney have fallen in 7 of the last 9 quarters, and are down 10% from the peak in December 2003.
Whereas, house prices in Perth continue to soar. Perth house prices were up 9%q/q and are now running at 29%oya.
JPMorgan maintains its view, however, that it is too early to call a sustained rebound in house prices, especially on the East Coast and now that the RBA has tightened policy.
The most likely scenario is that growth in national house prices will plateau in 2006 as the market’s investment fundamentals, which remain poor, catch up from previous excesses.
The recent policy tightening by the RBA which saw a 6% drop in consumer confidence in May — even after a generous Federal Budget, and the likelihood of another rate rise in September, will keep some buyers on the sidelines and limit any upside to house prices in 2006.
Rental yields remain low.
By Jarrod Kerr, economist with JPMorgan Securities.*
