AUSTRALIA: Housing Affordability Remains Poor, House Prices Diverge
Jan-07 23:37
Q4 CoreLogic home values were flat on the quarter to be up 5.3% y/y down from +1.3% q/q and 7.6% y/y in Q3. The capital city index fell in each of the three months in the final quarter driven by weakness only in Sydney and Melbourne. This levelling out in house prices, rising disposable income and stable mortgage rates have helped housing affordability to stabilise but at a particularly unfavourable level.
- Mortgage rates are likely to fall during 2025 but the timing remains unclear. The OIS market has a full 25bp by the April 1 RBA decision and close to 3 cuts by year end. But the RBA remains highly data dependent and while it is becoming more confident that inflation is sustainably returning to the band, there is still further to go.
- Flat Q4 house prices helped affordability to stabilise at 43% below trend but at this stage it is difficult to see a meaningful fall in dwelling prices which is needed to boost affordability but this hides state-based differences. In contrast, affordability is improving in NZ with falling rates and house prices.
Australia housing affordability vs valuation % deviation from trend
Source: MNI - Market News/Refinitiv
- Working age population growth moderated to 2.4% y/y in November from 3% a year ago, but it continues to grow by 40-50k/month ensuring continued robust housing demand. While supply remains constrained with only a tentative recovery in building approvals.
- Housing remains overvalued based on the house price to rents ratio but it has become less so over the last year. Our housing valuation index was 7.6% above trend in Q4, assuming Q4 CPI rents at 6.5% y/y, compared to 10.6% in Q4 2023 and a peak of 24.2% during Covid.
- The Westpac/MI “time to buy a home” index picked up in Q4 but remains at depressed levels due to high house prices and mortgage rates. But December house price expectations fell 5.3% m/m and 9.7% y/y to the lowest level since April 2023.
Australia Westpac/MI "time to buy a home" nsa
Source: MNI - Market News/Refinitiv
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE 10-YEAR TECHS: (Z4) Shallow Bounce
Dec-08 23:15
- RES 3: 96.975 - High Mar 14
- RES 2: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- PRICE: 95.765 @ 16:00 GMT Dec 06
- SUP 1: 95.275 - Low Nov 14
- SUP 2: 94.722 - Low Jul 2
- SUP 3: 94.514 - 1.0% 10-dma envelope
Aussie 10-yr futures added to the recent recovery Wednesday, with soft Australian GDP adding a tailwind. For the corrective bounce to take hold, prices must break and hold above the 96.207 level. Bearish price patterns, however, expose 94.722 on further weakness, ahead of vol-band based support at 94.514.
CHINA: Xinhua Suggesting Room to Increase Deficits.
Dec-08 23:06
- State media Xinhua reported over the weekend that China has room to increase the fiscal deficit to support the struggling economy.
- Xinhua described China’s approach to the fiscal deficit as ‘relatively cautious’ and suggested that 3% fiscal deficit ratio was lower than other major economies.
- This week is the annual Central Economic Work Conference where it is expected that the key leaders in China will discuss raising the country’s deficit ratio next year above 3%, whilst maintaining the 5% GDP growth target.
- Finance Minister Lan Fo’an indicated that his intention was to adopt a more forceful fiscal policy next year and ‘actively’ raise the deficit.
- Market commentators have suggested that the deficit target could be raised to between 3.5% and 4.0% of GDP, which would increase government bond issuance, and potentially put some upward pressure on yields.
US TSYS: Payrolls Data Puts December Cut in Play
Dec-08 22:48
- Friday night was all about payrolls and the report was very close to expectations for November alone, rising 227k vs consensus 220k and a primary dealer analyst median of 225k.
- Two-month revisions were at least positive at +56k after the heavy -112k revisions in the October report, but only +24k of that upward revision came in October which could have underwhelmed expectations.
- The average of the last two months as a crude estimate of underlying trend sees nonfarm payrolls growth of 132k and private at 96k.
- Trading volumes in the January 2025 fed funds futures rose to a record with volume exceeding 300,000 contracts, compared with full-day volume of 251,000 on Nov. 14, when Powell said the recent performance of the US economy had been “remarkably good,” giving central bankers room to lower interest rates at a careful pace.
- Cash saw lower yields across the curve by 1-4bps with front end to intermediate the biggest movers, thus steepening the curve.
- US2YR 4.106% (-4bp), US5YR 4.037% (-4bp), US10YR4.155% (-2.3bp) US30YR 4.339% (+0.3bp).
- The US10YR Mar25 future finished higher on the day at 111-14, following from the open of 111-06.
- Projected rate cuts into early 2025 at current levels vs. this morning as follows: Dec'24 cumulative -21.3bp, Jan'25 -29.3bp, Mar'25 -45.2bp, May'25 -54.9bp.
- No tier 1 data out tonight in the US only wholesale inventories, wholesale trade services, NY Fed 1 yr inflation expectations and NFIB small business optimism.
