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: sophia.rodrigues@marketnews.com

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