Macro intelligence: property outlook

Article by Juliette Saly (ausbiz)

In this week’s edition of IG's macro intelligence, we take a look at the outlook for the housing market and highlight the stocks which may benefit.

Outperformance in 2023

Australian home prices rose 8.1% in 2023, according to CoreLogic data. That was stronger than expected given rising interest rates and was a turnaround from the -4.9% decline in 2022.

Among the capital cities, Perth recorded the strongest growth, with home prices up 15.2% on an annual basis, while Hobart was the weakest, with a -0.8% decline. Yet five of the eight capitals are still recording values below record highs. The median dwelling price for Australia now sits at $757,746.

Building on gains?

CoreLogic says the trends from late 2023 are pointing towards a milder outcome for values in 2024. Home prices rose just 0.4% across the board in the month of December amid higher interest rates.

Meanwhile, AMP is predicting property prices to fall between 3-5% this year, as higher mortgage rates and increased cost of living pressures start to bite.

“Even if rates have peaked, the huge hit to home buyer 'capacity to pay' remains in place – we estimate that the capacity to pay for a home for a borrower with a 20% deposit on full time average earnings is around 30% lower than it was in April 2022,” wrote AMP chief economist Dr Shane Oliver in a recent note.

But it could be a year of two halves, as predicted interest rate cuts support dwellings later in the year. Migration and a lack of supply have been propping up the market.

AMP’s base case is that the start of rate cuts from around mid-year should help prices bottom and then start to rise again by the end of the year.

Constructing your portfolio

We take a look at stocks which could benefit from a further uptick in construction and the established property market.

Brickworks

Brickworks is an Australian manufacturer and supplier of building materials, including bricks, pavers, concrete blocks and terracotta products.

Brokers are generally positive on the stock with three buys, two holds and one neutral according to FNArena data. UBS is the most positive, with a buy rating on the stock and a price target of $29.

CSR

Building products conglomerate CSR has risen around 30% over the past 12 months. UBS has a buy on the stock, Bell Potter has a hold, while Ord Minnett has recently downgraded the company to a sell.

James Hardies Industries

For global materials company James Hardie Industries, analysts are also positive.

Macquarie

Macquarie is the most bullish, with an outperform rating and a target price of $58.40. Citi says a peak in rates and expected rate cuts could see renewed interest for A-REITS.

Broker's favourites include Stockland, GMG

The broker prefers Stockland, Goodman Group (GMG), and Lifestyle Communities among sector favourites. The integrated property group GMG has operations throughout Australia, New Zealand, Asia, Europe, the United Kingdom and the Americas.

It’s risen almost 37% over the past 12 months and analysts remain positive, with UBS and Citi both targeting $25 per share.

^{This information is presented by IG in partnership with ausbiz.}