AUSTRALIA: Lower Rates Helping But Housing Remains Unaffordable
Lower mortgage rates following 75bp of RBA easing and rising disposable incomes have driven an improvement in housing affordability but higher dwelling prices due to both solid demand and continued supply constraints are limiting the advance. Rising prices are not supporting consumer sentiment which fell 3.1% m/m to 95.4 in September, still in pessimistic territory, as Westpac’s home buying sentiment trends lower.
- Our housing affordability index (HAI) rose 8.4% y/y in Q2 to its highest level since Q2 2023 and is likely to improve further in Q3 with disposable income continuing to rise (Q2 0.6% q/q & 7.1% y/y) and mortgage rates trending lower (Q3 average down 0.3pp). However it is far from neutral at around 38% below trend – in unaffordable territory.
Australia housing affordability vs valuation % deviation from trend
Source: MNI - Market News/LSEG
- August Cotality home values rose 0.8% m/m, highest since May 2024, to be up 3.6% y/y after 3.2% in July. Melbourne and Sydney are underperforming the other capital cities.
- On the demand side, working-age population growth has slowed to 2% y/y from 3% two years ago. New home sales are strong rising 12.6% y/y in August but owner-occupier lending is soft rising 0.9% q/q but down 0.2% y/y.
- Housing remains overvalued with our HVI 6.2% above trend in both Q1 and Q2 but down from 10.3% in Q4 2023. House price inflation is exceeding rents which grew 3.9% y/y in July after 4.5% y/y in Q2.
- In terms of supply, building approvals have been lacklustre. Multi-dwelling units picked up but private houses slowed. Q2 real residential capex rose only 0.4% q/q but was up 4.8% y/y, which is below previous expansions.
Australia home values vs rents y/y%
Source: MNI - Market News/LSEG
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
LOOK AHEAD: Eurozone Timeline of Key Events (Times BST)
| Date | Time | Country | Event |
| 19-Aug | 0900 | EU | EZ Current Account |
| 20-Aug | 0700 | DE | PPI |
| 20-Aug | 0810 | EU | ECB Lagarde at WEF Intl Business Council |
| 20-Aug | 1000 | EU | HICP (f) / Q2 Flash Vacancies / Labour Cost Index |
| 21-Aug | 0815 | FR | S&P Global Services / Manufacturing PMI (p) |
| 21-Aug | 0830 | DE | S&P Global Services / Manufacturing PMI (p) |
| 21-Aug | 0900 | EU | S&P Services / Manufacturing / Composite PMI (p) |
| 21-Aug | 1000 | EU | Construction Production |
| 21-Aug | 1500 | EU | Consumer Confidence Indicator (p) |
| 22-Aug | 0700 | DE | GDP (f) |
| 22-Aug | 0745 | FR | Manufacturing Sentiment |
| 22-Aug | 1000 | EU | Q2 Negotiated Wage Growth |
| 23-Aug | 1725 | EU | ECB Lagarde at Jackson Hole |
| 25-Aug | 0800 | ES | PPI |
| 25-Aug | 0900 | DE | IFO Business Climate Index |
| 25-Aug | 1400 | BE | BNB Business Confidence |
| 26-Aug | 0745 | FR | Consumer Sentiment |
| 27-Aug | 0700 | DE | GFK Consumer Climate |
CHINA: Country Wrap: Monetary Conditions to Remain Accommodative
- China's monetary conditions are likely to remain reasonably accommodative in the coming months, continuing to support credit expansion while contributing to steadier capital market expectations, analysts said on Monday. They said that the focus of the People's Bank of China, the country's central bank, on preventing idle capital circulation should not be seen as an effort to cool the recent stock market rally, but rather as a move to ensure funds flow into the real economy instead of idling within the banking system. (source China Daily)
- Chinese Foreign Minister Wang Yi held talks with Indian Foreign Minister Subrahmanyam Jaishankar on Monday in New Delhi. Wang emphasized that both sides should earnestly draw lessons from the past 75 years, foster a correct strategic perception and regard each other as partners and opportunities rather than rivals or threats. Wang stated that China and India should strengthen confidence, move toward each other, overcome disruptions, expand cooperation and consolidate the positive momentum in improving bilateral relations. (source Global Times)
- All of China's major bourses posted modest gains today with the Hang Seng up +0.19%, CSI 300 +0.13%, Shanghai Comp +0.30% and Shenzhen Comp +0.13%.
- Yuan Reference Rate at 7.1359 Per USD; Estimate 7.1866
- Bonds are steady with the CGB 10 yr -1bp lower at 1.77%
BOBL TECHS: (U5) Trading Closer To Its Recent Lows
- RES 4: 117.710 High Aug 5 and a key resistance
- RES 3: 117.640 High Aug 7
- RES 2: 117.528 50-day EMA
- RES 1: 117.374 20-day EMA
- PRICE: 117.100 @ 05:50 BST Aug 19
- SUP 1: 116.950 Low Aug 15
- SUP 2: 116.840 1.00 proj of the Jun 13 - Jul 11 - 22 price swing
- SUP 3: 116.800 Low Mar 17 (cont)
- SUP 4: 116.637 76.4% retracement of the Mar 6 - Apr 7 bull leg (cont)
A strong sell-off in Bobl futures last Friday highlights a bearish threat, once again. The contract is trading at the bottom-end of the recent range and has pierced support at 116.970, the Jul 25 low and a bear trigger. A clear breach of this level would set the scene for an extension towards 116.849, a Fibonacci projection. Key short-term resistance to watch is 117.528, the 50-day EMA.
