by Craig James

RP Data / Rismark Home Value Index (Released May 1; Forecast +0.3% in April; +11.5% over year)

There is a spattering of economic data releases over the coming week. On Monday, CommSec releases the quarterly State of the States report – a report examining the relative performances of the state and territory economies.

On Wednesday the Reserve Bank releases the private sector credit or lending figures for March. And the Bureau of Statistics (ABS) issues selected living cost indexes for a range of demographic groups.

On Thursday the Performance of Manufacturing index is released together with the RP Data / Rismark Home Value index while the ABS also releases data on import and export prices.

And on Friday, data on new home sales is released with figures on business inflation (producer prices).

However if there is a highlight over the week, it has to be the data on home prices. Seemingly everyone and the proverbial drover’s dog have an opinion about the solid growth of home prices. Some believe the stellar gains in home prices will be just a short-lived phenomenon caused by a temporary imbalance between supply and demand for homes. In other words, prices will soon ease. Others are more concerned, suggesting that a bubble is developing and if home prices continue to inflate, eventually the bubble will burst, causing strife for the broader economy.

The more likely result is the former scenario rather than the latter scenario. Certainly home prices have lifted markedly after a long period of sluggish growth. And the lift in prices is being confined to a small number of regions rather than being widespread. At the same time, there is also a supply response with the number of dwelling approvals soaring to record highs. Over the next year a raft of homes and apartments will be built, serving to meet the needs of Australia’s growing population.

The latest daily data from RP Data shows that growth in home prices remains polarised with Sydney prices up 17.4 per cent over the past year with Melbourne prices up 12 per cent with Brisbane-Gold Coast prices up 6.4 per cent, Perth prices up 5.7 per cent and Adelaide prices only 3.7 per cent higher than a year ago. Overall, the 5-city aggregate measure of home prices is up 11.7 per cent on a year ago.

If you mention the term “housing bubble” outside Sydney or Melbourne, no doubt you’d get some strange looks as only Sydney and Melbourne prices are recording double-digit annual gains. But the risk is that investors will soon start to turn their attention to other capital city markets as Sydney and Melbourne markets become more over-valued.

The RP Data daily home value index has lifted just 0.4 per cent so far in April after recording average gains of 1.2 per cent a month from November to March.

Overseas: US employment grabs the spotlight

In the US, it’s not just the customary employment figures on the first Friday of the month that warrants attention. Also in the coming week Federal Reserve policymakers will hold a meeting, determining whether to continue winding bond purchases.

Kicking off the week in the US, is the release of the pending home sales index on Monday together with the Dallas Federal Reserve index.

On Tuesday, Standard & Poor’s and CaseShiller will release February data on home prices, no doubt highlighting similar trends to the FHFA home price index released a week earlier. The April consumer confidence index is released on the same day with a modest gain expected.

Over Tuesday and Wednesday the Federal Reserve Open Market Committee meets and will likely agree to cut back bond purchases by another US$5 billion a month (decision announced 4am AEST on Thursday).

Also on Wednesday the Federal Reserve chair, Janet Yellen, delivers a speech. On the same day the advance March quarter estimate of economic growth will be published (1.1 per cent annual rate expected) together with the ADP private employment gauge and the employment cost report.

On Thursday the regular weekly data on claims for unemployment insurance is issued together with figures on auto sales, personal income & spending (income tipped +0.4 per cent with spending +0.6 per cent) and the ISM manufacturing gauge (54.2 expected).

And on Friday the pivotal non-farm payrolls or employment report is issued. Economists expect that 203,000 jobs were created in April, up from 192,000 in March. And the jobless rate may have fallen from 6.7 per cent to 6.6 per cent. If job growth is stronger-than-expected, this will unleash another wave of views about the likely timing of rate hikes in 2015.

Investors to search for value in shares

The US profit reporting season continues in the coming week although most of the household names have already reported results. As a result investors are likely to look elsewhere for direction.

Certainly it would pay domestic investors to consider the performances of different industry sectors and at the same time to assess where they are headed in coming months.

Those investors that chose not to put all their funds into residential property either a year ago or five years ago, instead channelling funds into bank shares, have been well rewarded. The banking sharemarket sub-index has risen by around 14 per cent over the past year or 20 per cent if dividends are included. Over the past five years the banking index has lifted 88 per cent with dwelling prices up 25 per cent. Puts a new perspective on the “bubble” rhetoric.

Upcoming economic and financial events

Australia

  • Monday 28 April - State of the States 
  • Tuesday 29 April
  • Wednesday 30 April - Private sector credit (March); Selected living cost indexes (March quarter)
  • Thursday 1 May - Import & export prices (March quarter): RP Data/Rismark home prices (April): Performance of Manufacturing (April)
  • Friday 2 May - Producer prices (March quarter); New home sales (March)


International

  • Monday 28 April - US Pending home sales (March)
  • Tuesday 29 April - US CaseShiller home prices (February); US Consumer confidence (April); US Federal Reserve meeting (day 1)
  • Wednesday 30 April - US ADP employment (April); US GDP advance (March quarter); US Federal Reserve meeting (day 2)
  • Thursday 1 May - China Purchasing Managers Index (April); US Personal income (March); US ISM manufacturing (April); US Auto Sales (April); US Construction spending (March); Speech by US Federal Reserve chair