What is the Market REALLY doing ? Does anybody know ? TALK TO ME ! ! !

Home prices post biggest fall in 14 months
Home prices

• The RP Data-Rismark Hedonic Australian Home Value Index – the largest property database in Australia – reported that home prices fell by 0.7 per cent in seasonally adjusted terms in June – the biggest decline in since April 2008.
• Home prices are up still up 10.5 per cent in June on a year ago – but it is the slowest annual growth rate in eight months.
• Home prices fell most in Perth (down 1.5 per cent) and Melbourne and Canberra (both down 1.4 per cent).

What does it all mean?
• The Reserve Bank clearly has another reason to stay on the interest rate sidelines. Home prices slumped in June according to the RP Data-Rismark Hedonic Australian Home Value index. And given that the index has the capability of tracking every property transaction in Australia, the preliminary June results clearly represent a wake-up call.
• While the APM house price index posted a healthy gain for the June quarter, it suffers from definitional problems much like the Bureau of Statistics survey. The Reserve Bank as well as rating agency Moody’s rely on the RP Data index as the best guide to home price trends.
• We had always argued that the May rate hike was a step too far. In fact the April move can also be questioned. But it will be important now for the Reserve Bank to stay on the interest rate sidelines to give shell-shocked consumers and home-buyers a chance to catch their breath.
• It may be the case that interest rate levels are only at “normal” levels. But the pace of rate hikes – the most aggressive tightening cycle in 16 years – clearly has taken its toll.
• Overall housing market fundamentals are positive. Population growth is still firm, the job market is healthy, housing supply still lags demand in many markets and wealth is at record highs. So this correction still looks more like the ‘pause that refreshes’.

• Home-buyers and home owners must factor in more normal growth of home prices in 2010/11 around 5-8 per cent. And some markets like Melbourne may face a more protracted period of softness. Provided rates remain on hold until at least late this year, the housing market should experience a soft landing.
• While the outlook still remains positive, a 0.7 per cent fall in the space of a month is clearly unsettling.

What do the figures show?
House Prices
• The RP Data-Rismark Hedonic Australian Home Value Index fell by 0.7 per cent in seasonally adjusted terms in June – the biggest monthly fall since April 2008. The monthly growth rate peaked in January at 1.7 per cent and has consistently softened since.
• House prices fell 0.8 per cent in the month with apartments down 0.5 per cent.
• Home (dwelling) prices are up 10.5 per cent on a year ago with house prices up 10.2 per cent and apartment prices up 11.4 per cent.
• The biggest fall in home prices occurred in Perth (down 1.5 per cent), followed by Melbourne and Canberra (both down 1.4 per cent), Darwin (down 1.0 per cent), Brisbane (down 0.8 per cent), Adelaide (down 0.7 per cent)and Sydney (down 0.1 per cent).
• In all capital cities home prices are higher than a year ago. Leading the way is Melbourne (up 16.0 per cent) followed by Darwin (up 14.3 per cent), Canberra (up 10.6 per cent), Sydney (up 10.4 per cent), Adelaide (up 9.1 per cent), Perth (up 5.1 per cent) and Brisbane (up 4.5 per cent), and

What is the importance of the economic data?
• The RP Data-Rismark Hedonic Australian Home Value Index is based on Australia’s biggest property database including over 280,000 sales during 2009. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the RP Data-Rismark Hedonic Index includes all properties.
• The monthly RP Data-Rismark Hedonic Index compares month-to-month index results. Quarterly results are measured comparing end months rather than averaging each month in the quarter. For example, the first quarter of 2009 index results compare the end of March index with the end of December index

What are the implications for interest rates and investors?
• Investors need to readjust their sights. Double-digit annual growth in home prices is never sustainable – the long-term average is 8 per cent and that’s where prices are headed. In fact prices are likely to overshoot with growth easing to the very low single digits before bottoming.
• The Reserve Bank now has even more justification to stay on the sidelines. Fortunately inflation has eased, otherwise the RBA would have had a difficult decision – firm inflation and falling home prices is a dangerous combination.
• The fundamentals for housing are still positive. Nevertheless the sharp drop in home prices in June will reduce the appeal of banks and housing-dependent stocks in the short-term.

Source Craig James, Chief Economist, CommSec