Transcription of Finance News Network interview with RP Data Senior Research Analyst Cameron Kusher Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me today from Australian property data provider RP Data is Senior Research Analyst, Cameron Kusher. Cameron, welcome back to FNN.
Cameron Kusher: Thanks for having me.
Lelde Smits: RP Data has just reported the biggest fall in Australian home prices in more than five years. What was the result and what do you attribute it to?
Cameron Kusher: Home values fell by 1.9 per cent in May and if you have a look at what we’ve seen over the last 24 months or so it’s been quite strong growth in property values and obviously Sydney and Melbourne have been very strong. But on a quarterly basis value growth peaked back in last August last year and since that time we’ve seen the rate of growth slow. We’ve also seen consumer sentiment falling and sales volumes are a little lower now than they were late last year. So, I think it’s just some of that exuberance in the market now slowing. But, it will be interesting to see if we continue to see falls or if we just see more moderate levels of growth from here.
Lelde Smits: After such a long period of gains are we now seeing the start of a correction for home values?
Cameron Kusher: I don’t necessarily think it’s going to be a correction. If we look at the last three Mays, we’ve seen values have fallen in each of those months so we do tend to find a bit of seasonality at this time of year, coming off a strong performance in the first quarter of the year.
Lelde Smits:What would you need to see to put Australian house prices in correction territory?
Cameron Kusher: I don’t think it goes into correction territory until we start to see maintained falls for six or twelve months and I still think obviously that it’s one month of data that we’ve seen a fall, coming off twelve months where we’ve seen values rising but I still think we are a long way from a correction.
Certainly certain capital cities have a greater opportunity for a correction. Melbourne for example, hasn’t really seen a sustained correction period since the mid nineties. The Perth housing market has slowed quite a bit more recently obviously on the back of weaker iron ore prices. And those markets are probably more exposed to a correction than say Sydney, where’s there’s a lot of pent up growth and not much growth in property values over the last decade. And, markets like Brisbane and Adelaide where we haven’t really seen much growth in the last seven years or so.
Lelde Smits: If this isn’t a correction where do you see house prices moving from here?
Cameron Kusher: Over the last year we saw values rise by about ten per cent across the combined capital cities. Our view has always been that 2014 would be a much more moderate year for growth. So far this year values are up 1.9 per cent. At the same point last year values had risen by 1.1 per cent so it’s interesting that growth now is actually greater than last year but most of that growth came in the second half of last year and obviously that momentum carried through to the early part of 2014. Our view would be that growth this year is probably going to be more about the 5 per cent, so probably half of what we saw last year.
Lelde Smits: Looking at the latest results, which capital cities contributed most to the falls and what was behind the underperformance?
Cameron Kusher: The Melbourne market saw a 3.5 per cent fall in values over the month. Again, it’s been one of the stronger performing markets. 3.5 per cent is a big fall obviously on a monthly basis, and we do know that month to month results can be quite volatile. But I think if you have a look at that market, auction clearance rates have been falling over the last six or eight weeks. The amount of new stock on the market is quite high, total listings are much higher in Melbourne than they are even in Sydney, so there’s a lot more stock available for sale, and potentially a few less buyers out there, and that’s probably impacting the market. I don’t think that 3.5 per cent fall is necessarily reflective of the kind of falls we are going to see going forward.
Lelde Smits: On the flipside, which capital city was the standout performer and how much more momentum could be left in the gains?
Cameron Kusher: Darwin saw values rise by 1 per cent which is obviously quite strong when you consider that nationally values were down by about 1.9 per cent. The Darwin housing market has had a lot of momentum really over the past decade, and is really being driven by infrastructure investment both from the private sector and the public sector and the strong mining segment in Darwin and the Northern Territory. That’s probably going to continue for a little while yet.
The big question marks will happen once that investment runs out, probably in two to three years time and if we start to see some of those transient workers that have gone to Darwin to work and live, start to pull out and start to move to back to where they came from. For the moment we will continue to see some more growth in that market.
Lelde Smits: Finally Cameron, Australia’s key cash rate has just again been kept on hold at a record low of 2.5 per cent. Where do you see rates trending and ending this year?
Cameron Kusher: It’s an interesting one. If you asked me a couple of days ago I probably would have said rates would be on hold for this year, and I still think they probably will be. But, obviously the risks of a lower interest rate are rising, housing market potentially cooling. Dwelling approvals were quite weak this month down 5.6 per cent. The economy is certainly not looking as strong as it was a couple of months ago. Consumer confidence is well down as well. I think that interest rates will remain on hold, but I would say that from what we are seeing at the moment it would be more likely that they might be lower than they would be higher.
Lelde Smits: Cameron Kusher, thank you for the update from RP Data.
Cameron Kusher: Thanks Lelde
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