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MNI POLICY: Australia Hsg Data Signals Bigger Downturn Ahead

By Sophia Rodrigues
     SYDNEY (MNI) - Australian national dwelling values dropped for the tenth
straight month in July, according to data published by CoreLogic Wednesday.
Below are the main observations we made from the data that might have
implications for the Reserve Bank of Australia's monetary policy:
     --The July report is the weakest since housing prices began declining in
September last year, and with no major supportive factor for housing market seen
in the near future, this report could mark the start of a bigger downturn. The
data supports an extended period of RBA cash rate on hold at 1.5%, with some
chance that the rate may have to lowered further if housing market activity
worsens at a faster rate.
     --National dwelling values fell 0.6% m/m in July, the biggest pace of
decline since September and the 0.9% rolling quarterly fall was the lowest since
January 2012. Additionally, both combined capitals and regionals contributed to
the decline in July.
     --So far the weakness remained concentrated in the two major cities of
Sydney and Melbourne but Perth has also joined the declining spree, down 0.8%
and 2.3% y/y. Significantly, Brisbane and Adelaide are now showing signs of
downward pressure after rising at a more sustainable pace over the past five
years. While Brisbane prices were still higher in July, up 0.1% m/m, Adelaide
prices fell 0.1% m/m. Even the Hobart market, where the annual pace of gains has
been in double-digits since January last year, is now starting to slow down with
flat m/m value in July.
     --Also, important for RBA's monetary policy is further easing in rental
conditions, with national rents falling 0.2% m/m to be only 1.6% higher. Note
housing rent was an important drag on Q2 consumer price index inflation with
flat q/q growth. Rental yields also remain low which would be a disincentive for
investor-buying in the market. Melbourne's rental yield is 3.04% and for Sydney
it is 3.21%, which is well below the national yield of 3.72%.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:
[TOPICS: MALDS$,M$A$$$,M$L$$$,MT$$$$]

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