THE BIG PICTURE: Steady house price rise recorded as RBA meets on rates

RP Data and Rismark will today release their latest Home Value Index results for March. The data provides the most comprehensive assessment of home prices simply because they have data on almost all transactions (an estimated 99% of the market). And clearly it is hard to do much better than that.

While most people still prefer to monitor home prices on a monthly or quarterly basis, it’s worth noting that the data is collected on a daily basis. So clearly you can track how your capital city is performing on a regular basis.

The good news for home owners and those paying off mortgages is that most prices continue to lift, albeit modestly. Over March to date, the five-capital city aggregate index has lifted by 1.4% with gains in all cities except Adelaide (down 0.2%).

Perth leads the way with prices up 2.7% in the month, followed by Brisbane (including Gold Coast), up 1.8%, and Sydney, up 1.4%, and Melbourne, up 1.1%.

Over the year the five capital city index of home prices is up 2.5%, with Perth again leading the way, up 5.2%. Next was Sydney (up 3.8%), followed by Brisbane (up 2.0%), Melbourne (up 0.7%) and Adelaide (up 0.4%).

Interestingly, the five capital city aggregate currently stands at 2.5 year highs and is just 2.8% below the all-time high set in October 2010. At the current rate, new highs for home prices will be set mid-year.

The week ahead

It may be a holiday-shortened week but there is still plenty to focus on this week. In Australia, the Reserve Bank Board meets. In the US, the focus is on Friday’s jobs report.

In Australia, the week kicks off today with the meeting of Reserve Bank Board members. Overall this should prove a non-event as may the next couple of meetings. The Reserve Bank wants businesses and consumers to get on with life, so rates are being held stable but an easing bias is maintained (that is, interest rates are more likely to be cut than increased). As always, however, investors and analysts alike will carefully scrutinise the accompanying statement outlining the reasons for the Reserve Bank interest rate decision.

RP Data-Rismark will also release their home value index today and the Performance of Manufacturing index is also issued.

Tomorrow, the Bureau of Statistics (ABS) will issue the February international trade data as well as the December quarter detailed estimates of engineering construction activity. The 14th straight trade deficit is expected, around $1.4 billion. New home sales data is also issued tomorrow.

On Thursday the ABS issues February data for both retail trade and building approvals. Consumers appear to be opening up their wallets a bit wider, according to official and unofficial reports. Spending certainly isn’t going gangbusters but the trends are encouraging. We tip a modest 0.2% rise in February sales.

Building approvals – the approvals by local councils to build new homes and commercial buildings – are volatile from month to month. But again the trends are positive with apartment building by investors and developers offsetting weak new house construction. We suspect that home approvals rose by 3% in February.

Also on Thursday the Federal Chamber of Automotive Industries releases March data on new car sales. Sales of four wheel drives, utes and trucks are growing strongly although passenger car data is soft. The Performance of Services index is also released on Thursday.

Tomorrow, the Institute of Supply Management issues its survey on the services sector. Any reading above 50 suggests expansion and economists expect that the index was unchanged at 56.0 in March. The ADP national employment index is also released and private sector jobs are tipped to have lifted by 216,000 in March.

The weekly data on home loans also comes out tomorrow with weekly claims for unemployment insurance on Thursday together with the Challenger job layoff series.

And on Friday, the data that analysts have been waiting all week for: non-farm payrolls (monthly employment). The job market is improving and economists believe that almost 200,000 jobs were created in March while the jobless rate could ease from 7.7% to 7.6%. Any marked improvement in the job market will spark a sell-off in bonds and sharp gains in equities markets.

Sharemarket, interest rates, currencies and commodities

Ahead of the Reserve Bank Board meeting, what are financial markets saying about the chances for a movement in rates in any direction in coming months? In terms of the upcoming meeting, financial market pricing suggests only a scant 8% chance of a rate cut. The overnight index swap market has a cash rate of 2.94% priced in for three months’ time and 2.90% in six months.

But it gets more interesting when you look at the bank bill futures market. The implied yield on 90-day bank bills for June or September is around 3.00%, a level in line with the pricing of physical bank bills (or spot market if you like). But in March 2014 the implied yield lifts to 3.04%, suggesting that the risk for the Reserve Bank is tilted slightly to a tightening in policy at that time.

The March quarter has turned out to be a very good quarter for the Australian sharemarket. At present it looks like the All Ordinaries will post gains of around 7.4% for the quarter, down slightly on the growth recorded last year but the fourth straight March quarter gain. Admittedly, the All Ords fell sharply in the first quarter of both the 2008 and 2009 years as the global financial crisis (GFC) raged.

So as we move into April, what can we expect? CommSec has data on the All Ordinaries stretching back 70 years. And on average over that long period, the All Ords has risen 1.7% during April, the third best gain for any month behind December and January. But while stocks performed well over the 1980s and 1990s, over the past decade the performance has been more average, affected by the GFC.

Craig James is chief economist at CommSec.


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