Illustration: Rocco Fazzari.
If you are a Sydneysider who owns a home - you should be feeling 15.6 per cent wealthier than you were a year ago. The value of Melbourne houses has risen an almost equally impressive 11.6 per cent. And those who own houses in the premium end have fared even better.
A strong rise in house prices in March has capped off a stellar year in capital gains for home owners, and for those who have invested in the sharemarket or superannuation as well, your net worth would be further ahead.
Home owners should be basking in what economists call the wealth effect - feeling richer but without the cash. But with each rise in the property market comes a warning on whether the level of growth is sustainable (or worse) whether property is in bubble territory.
The March increase in dwelling values, measured by RP Data-Rismark, now puts half of Australia's cities at record highs - an enormous bounce since post-GFC lows. But the rate of growth has steepened since June last year.
The cumulative effects of interest rate cuts in 2012 and 2013 really started to take effect nine months ago and along with it better auction clearance rates and property values.
The house value trend dovetails with credit growth in February of 0.41 per cent, taking the annual rate to 4.3 per cent. But the housing credit market is not growing at the same rate, which suggests the banks are not loosening their credit policies too much.
UBS continues to expect housing credit growth to reach about 6.2 per cent in 2014 before slowing in 2015 and 2016 as the interest rate cycle normalises. While there are some initial signs that domestic credit growth (people borrowing) is easing a little, there is no suggestion that the growth won't continue.
RP Data's research director, Tim Lawless, is predicting a cooling off as the year progresses, and he isn't alone. But it's a question of when.
What started as an investment property-fuelled demand for housing has broadened to owner-occupiers. In a perfect world the credit and housing markets would inch ahead or stabilise over the remainder of the year rather than get a head of steam or turn into a property bubble.
The average Australian house price is now equal to 4.4 times disposable household income and on current trends is on track to top the valuation peaks of June 2006 and June 2010 when the ratio was a record 4.5. But contrary to some opinion, the escalating house prices did not appear to attract much attention at the Reserve Bank, which on Tuesday kept interest rates steady at 2.5 per cent.
BHP still slimming
From the day Andrew Mackenzie took the top job at BHP Billiton he has been plotting the mother of all corporate spring cleaning exercises.
He has already offloaded billions of dollars of assets - but clearly this was just a warm-up. If his plan is to demerge up to $20 billion of BHP's non-core assets, the Big Australian will be decidedly slimmer and he hopes match-fit and more commercially attractive.
BHP has made no secret of the fact that it wants to focus its attention on what it calls its four (or perhaps five) business pillars - iron ore, copper, coal, petroleum and possibly potash. But to sell the remainder of businesses including aluminium, bauxite and nickel as well as potentially refining the same assets that fall within the four pillars could take years.
Revelations by The Australian Financial Review on Tuesday that Mackenzie is considering a demerger of the unwanted assets from the four (or five) pillar assets reflects just how intent he is on getting the job done.
Clearly he has the support of the board to transform BHP into a better returning business. But the process is taking some time as decisions need to be made about what stays and what goes.
Meanwhile, the move represents such a staggering about-turn from BHP's days under the reign of Marius Kloppers. His time was marked by a merger/acquisition-led growth frenzy - having attempted to spend $20 billion on PotashCorp, and $150 billion to merge with Rio. Although neither were successful, he managed to spend $20 billion on shale gas and oil in the US in 2011.
But the world has changed, and with record commodities prices subsiding, the new order in BHP (and Rio for that matter) has been to trim assets and capital expenditure. The more diversified BHP is under more pressure to pick winners within its portfolio of businesses - to choose which will be nourished by the more limited capital expenditure.
A demerger - particularly when equities markets are relatively robust - is a very economical way of undertaking this cleanout.
Regardless of which assets might end up in BHP jnr, it will be a diversified company with appeal for investors who want to play in those commodities. And the history of most demergers suggests, the sum of the parts is valued more than the whole.