How are house prices going? Not too bad it seems, when you look at the facts.
The Corelogic data for the first week of September show that Adelaide and Perth house prices are edging back up after edging down a tick in August. They are at or near hitting fresh record highs.
Sydney, Melbourne and Brisbane prices are continuing to fall – each is down approximately 0.25 per cent for the week which, if sustained, would suggest the pace of price decline is slowing after what were outsized falls in August.
Also by the Kouk:
From the time of the first rate hike in the current cycle in May, the changes in house prices in the cities covered by Corelogic are:
The gap between Sydney and Adelaide is huge in such a short period of time and the fact that Perth and Adelaide are above the levels prior to the hiking cycle suggests many factors, in addition to interest rates, are impacting the sector.
Recent data on house sales show auction clearance rates have stopped deteriorating - they might even have inched up a bit in the past month as owner-occupiers have tried to bargain hunt, and investors have stepped into the market to take advantage of a tight rental market and rising rental yields.
Also supporting the housing market is data from SQM Research, showing the supply of new listings for sale.
This has been weak, which suggests there is little or no forced selling and indicates there could be a relative shortage of properties for buyers to choose from as they step into the market.
While intra-month data on house prices is not available for Hobart, Canberra, Darwin and regional areas, the current run rate on the peak-to-trough fall from April 2022 is just 3.8 per cent.
That’s a moderate drop in absolute terms, but especially over a four-month period and in the context of the 25 per cent gain in the prior 18 or so months.
What does this all mean?
The risk for the economy and banks from a catastrophic house price fall remains low. While prices are likely to drop a bit more in the next few months, there could well be a bottoming in house prices in the early part of 2023.
The nation-wide peak-to-trough fall in house prices is still on track to be around 7 per cent when that point is reached in the new year.
The interest rate issue remains in play but the pressures for further aggressive rate hikes from the RBA are moderating.
With global inflation peaking and the RBA stashing 225 basis points of hikes in the kitty, Australian growth will slow, which will help see inflation return to target in the second half of 2023.
This means the peak in the cash rate is near - it looks like that will be around 3.0 per cent, from 2.35 per cent at present.
This is set to be a level reached in early 2023, which means a total of 50-100 points of hikes still to come.
Inflation nearing peak
The good news on inflation is yet to show up in Australia.
But, looking internationally, at commodity prices, supply chain problems and the broader economic slowdown as all major central banks continue to hike interest rates, it is clear inflation is about to peak.
The big questions remain the speed at which inflation slows and just how many more rate hikes will be needed to lock in the good news of lower inflation and, with that, lower cost-of-living pressures.
Money markets are pricing in around 75-150 basis points more of hikes from most central banks before the peak is reached around the middle of 2023.
This seems fair.
But fewer and less-extreme hikes will be needed if what is unfolding in commodities markets feeds quickly through to the official inflation data.
Eyes will be on growth and inflation readings around the world over the next few months.
If these confirm that interest rates, including here in Australia, are in fact near a peak, the housing market will gain support, which will see the broad house price falls evident since April 2022 come to an end.