Welcome
Welcome to this month's edition of the REIV Monthly Research Bulletin. There is some relief for mortgage holders as the Reserve Bank has decided to keep interest rates stable at a cash rate of 4.5 per cent for the second consecutive month. Though a welcome outcome for domestic homeowners, today's decision comes on the back of worries over European debt and the future of global growth.
REIV Members are welcome to provide opinions and requests for future releases. If you would like to contribute to this publication please email the REIV's research analyst Alex Turlea at aturlea@reiv.com.au.
Current Economic Conditions
Australia's labour market has continued to perform well as May 2010 employment data showed that the national unemployment rate dropped to 5.2 per cent from 5.4 per cent, with the participation rate falling slightly from 65.2 per cent to 65.1 per cent. Victorian unemployment increased slightly for the month to 5.4 per cent from last month's 5.3 per cent, as the participation rate increased from 65.0 per cent to 65.2 per cent. The strong higher demand for workers in our already strong labour market could put upward pressure on interest rates in the months to come.
The Australian dollar was trading at .8446 US dollars at close of business on the 5 June 2010. The depreciation of the Australian dollar against the US dollar in recent weeks is mostly attributable to increased worries of European financial instability and concerns that the global recovery is slowing. Concerns about the effects on global growth have lead investors away from higher yielding, riskier assets.
The Westpac - Melbourne Institute Consumer Sentiment Index decreased in June by 5.7 per cent to 101.9 in seasonally adjusted terms.
Four of the five component indices fell in June, with the largest decrease recorded by the component index reflecting family finances vs. a year ago (-17.7%), followed by the component index reflecting economic conditions next five years (-9.0%). Overall, the current conditions index decreased by 8.7 per cent and the expectations index decreased by 3.5 per cent. This month's index comes on the back of an unchanged cash rate of 4.5 per cent and GDP figures showing growth of 0.5 per cent in the March quarter.
National retail turnover increased by 0.2 per cent for the month of May in seasonally adjusted terms following an increase of 0.6 per cent last month. Victorian turnover also increased by 0.2 per cent in the month of May, following last month's 1.6 per cent increase. In trend terms, both the Victorian and Australian retail sectors posted modest growth of 0.4 per cent and 0.2 per cent respectively.
New motor vehicle sales decreased 3.2 per cent during May 2010 in seasonally adjusted terms following a revised 9.0 per cent increase last month, with the trend series not available. May's seasonally adjusted decrease is the fourth in five months however sales are still up 16.4 per cent for the year in seasonally adjusted terms.
Housing Market Conditions
The Australian and Victorian housing markets have continued their strong performance this year. The Melbourne auction market had a clearance rate of 68 per cent in June and a clearance rate of 76 per cent for the calendar year so far. There have now been over 14,800 homes sold by auction, almost twice as many as last year and 11 per cent more than the previous high in 2007. June 2010 had more auctions on a winter weekend than ever before, with over 1050 properties going to auction.
The number of total dwelling units approved in Victoria decreased by 3.0 per cent in seasonally adjusted terms for the month of May 2010, following a revised decrease of 15.2 per cent in the previous month. The value of total dwelling units approved in Victoria increased by 11.7 per cent to $1.4 billion dollars. In trend terms, the number of total units approved in Victoria decreased by 2.8 per cent for the month while the value of total dwelling units approved fell by 0.8 per cent.
Housing Affordability in Victoria has decreased in the December quarter. The proportion of income required to meet monthly loan repayments has increased from 28.2 per cent to 29.5 per cent over the quarter, an increase on 4.6 per cent. The average monthly home loan repayment has increased by 8.4 per cent for the quarter while the median weekly family income has increased by only 3.3 per cent. Supply issues need to be addressed as soon as possible for affordability to improve.
The total value of owner-occupied housing commitments, excluding alterations and additions, for April 2010 decreased 2.4 per cent in trend terms, which is now the tenth consecutive decrease. In seasonally adjusted terms, the total value of owner-occupied housing commitments increased by 0.6 per cent. The total value of commercial finance increased in trend terms by 5.6 per cent and increased by 2.8 per cent in seasonally adjusted terms. The value of total personal finance commitments decreased in trend terms by 0.6 per cent and decreased by 0.5 per cent in seasonally adjusted terms.
The REIV market sentiment index decreased in May 2010, falling 18.2 per cent to 8.04 for the month. This is the second-largest monthly decrease in the index in over two years, with six of seven components decreasing for the month, bringing the index below the neutral 100 mark for the first time in over one year. Key factors in the decrease in sentiment have been large decreases in the components representing anticipation of price growth over the next three months (-31.4%) and anticipation of turnover in the next three months (-29.3%).
The Metropolitan Melbourne rental market eased slightly in May 2010, with a vacancy rate of 1.7 per cent up from last month's 1.6 per cent. The inner-Melbourne rate remained unchanged at 1.6 per cent. The middle-Melbourne rate eased from 1.6 per cent to 2.0 per cent, while the outer-Melbourne rate also eased to 1.3 per cent from 1.1 per cent last month.
Source - REIV Research Bulletin