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Christopher Joye: The housing market has not peaked, this boom has some way to go yet; Dwelling prices are now the most expensive on record
Topic Started: 25 Sep 2015, 02:26 PM (2,993 Views)
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The housing boom has not peaked

by Christopher Joye

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The same people who failed to predict the great Australian housing boom of 2013 to 2015, who dismissed the possibility of a bubble emerging, and who poured cold water over the idea that regulators would introduce unprecedented controls to cool conditions, are now screaming that the market has "peaked". I will explain later why there is absolutely no evidence to support this proposition. For better or worse, this boom has some way to go yet.

Scott Morrison, who was once shadow housing minister, is correct to focus on liberating stubbornly inert housing supply to address the structural affordability problem that is attributable to artificially expensive urban land values rather than building costs. (I first highlighted this in a 2003 report I wrote for Turnbull and former prime minister John Howard.)

Despite the scare-mongering surrounding the end of the resources boom, we did manage to expand the real value of Australian output (or gross domestic product by 2 per cent over the year to June 30, which is only about half a percentage point short of recently revised estimates of "trend" growth. The jobless rate has likewise stabilised at a historically low 6 per cent, which is not miles above full employment, while the 37 per cent depreciation in the Aussie dollar is furnishing an exceptionally powerful tailwind for import-competing industries, exporters and tourism.

According to Bank of America Merrill Lynch (and the Bank of England), we now have the lowest short- and long-term interest rates in 5000 years! And ANZ reckons the RBA will cut twice more in 2016.

Enter the mindless media. After missing the arrival of the housing boom-turned-bubble in 2013 and 2014, they are falling over themselves to report the market has "peaked", auction clearance rates are plummeting, and prices are dropping. The hard data suggests this is bollocks.

Aussie dwelling values have inflated a healthy 0.5 per cent in the first 24 days of September and by a super-strong 3.7 per cent over the past three months, which is a 15 per cent annual pace. Over the nine months of 2015 capital gains have annualised at an incredible 12.1 per cent, which is faster than the 10.8 per cent year-on-year growth through to end September.

Pity the Reserve Bank of Australia's Glenn Stevens, who in mid-2014 said "it would in my opinion be good" if a "slower pace of growth in dwelling prices … did persist for a while". Stevens was hoping for "unremarkable performance on [house] prices" for the "next couple of years". Yet this week the RBA revealed that, relative to household incomes, dwelling prices are now the most expensive on record, surpassing the high watermarks set during the 2003, 2007 and 2010 booms.

Much-maligned auction markets also remain in rude health. Last weekend's 70.7 per cent clearance rate was way above the 59.8 per cent average since 2008 and notably identical to the outcome achieved this time last year. With tighter lending rules and a temporarily frozen Chinese bid (their government is trying to thwart capital flight), capital gains will likely decelerate from their current double-digit pace back to around 3 to 4 times wages growth. Property prices will stay well supported by the cheapest home loan costs borrowers have ever seen, a much lower Aussie dollar that stimulates expat and foreign demand, and the illusion that bricks and mortar, which does not get regularly revalued, is safer than the high-frequency and brain damage-inducing volatility of the sharemarket (and super portfolios overexposed to it). With banks needing to maintain asset growth and the RBA dovishly neutral, this boom will continue for some time yet.

Read more: http://www.afr.com/personal-finance/the-housing-boom-has-not-peaked-20150923-gjtdp8
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Terry
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Good to see one of the sharper widgets in the media-sphere resort to a subjective scenario (ignore the reference to "hard data" unless it shows some relationship with the present and immediate future. It's just there as an emotional pull). He's really at his best when he delves into "what ifs", but I guess they don't come for free and not prudent in times like we're experiencing right now.
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peter fraser
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Terry
25 Sep 2015, 02:44 PM
Good to see one of the sharper widgets in the media-sphere resort to a subjective scenario (ignore the reference to "hard data" unless it shows some relationship with the present and immediate future. It's just there as an emotional pull). He's really at his best when he delves into "what ifs", but I guess they don't come for free and not prudent in times like we're experiencing right now.
I think that he is right, it is still to peak. Finance is still going ballistic so there is no way that we are yet in a downturn

Investors however have been hit pretty hard, but that will only check the stride of the market for a few months until a fresh way through the maze is found that keeps APRA and the RBA happy. As long as their ducks are lined up they won't take further action.

If the ANZ are right about two more rate cuts it has some way to go. Funny that DLS at MB is still calling rate cuts but is also advising people to sell.
There are some crazy people in this business of predicting house prices. CJ has been on the money all the way along.

Any expressed market opinion is my own and is not to be taken as financial advice
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Terry
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peter fraser
25 Sep 2015, 03:25 PM
I think that he is right, it is still to peak. Finance is still going ballistic so there is no way that we are yet in a downturn

Investors however have been hit pretty hard, but that will only check the stride of the market for a few months until a fresh way through the maze is found that keeps APRA and the RBA happy. As long as their ducks are lined up they won't take further action.

If the ANZ are right about two more rate cuts it has some way to go. Funny that DLS at MB is still calling rate cuts but is also advising people to sell.
There are some crazy people in this business of predicting house prices. CJ has been on the money all the way along.
Yes, but there's one of the problems with mainstream thinking in Australia: future rate cuts somehow indicate a new great age of prosperity from leveraging up on house prices. It's a simplistic, one-dimensional hook that is providing the soundtrack into an economic mystery. Chris Joye is the offspring of the Western bubble era. His professional life and personal interests are not geared to explore anything else. Despite his smarts, he is still a pup in terms of understanding outcomes. I'm pretty sure he is aware of that.
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John F. Kennedy
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"Aussie dwelling values have inflated a healthy 0.5 per cent in the first 24 days of September"

This is based on what? RP data that is based on settlements, so is three months out of date at any time?
Edited by John F. Kennedy, 25 Sep 2015, 04:35 PM.
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Terry
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John F. Kennedy
25 Sep 2015, 04:35 PM
"Aussie dwelling values have inflated a healthy 0.5 per cent in the first 24 days of September"

This is based on what? RP data that is based on settlements, so is three months out of date at any time?
That will be based on his own index, which you can't really understand from a quantitative POV, as you're not privy to the hedonic regression.
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John F. Kennedy
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Is this Christopher Joye trying to beat up the market while pretending to lament that its not falling faster? There's something phony about pointing to an auction average since 2008. What a meaningless statistic. Surely the direction of clearances is more important and the graph shows that to be straight downwards for the last six weeks.

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stubby
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The same people who failed to predict the great Australian housing boom of 2013 to 2015, who dismissed the possibility of a bubble emerging, and who poured cold water over the idea that regulators would introduce unprecedented controls to cool conditions, are now screaming that the market has "peaked". I will explain later why there is absolutely no evidence to support this proposition. For better or worse, this boom has some way to go yet. (emphasis added)


Seems to me that Joye is declaring that an RE bubble exists, and is due to inflate further before it pops. It's a simplistic view, given that his supplied graph is national in scope, while the market-price-growth figures are a tale of 4 separate cities (Sydney / Melbourne / Brisbane / Perth) with wildly divergent individual dynamics.

But if Sydney pops, and wrecks the Big 4 banks, the rest of Australia will suffer regardless.

:( :( :(

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Terry
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stubby
25 Sep 2015, 06:00 PM


Seems to me that Joye is declaring that an RE bubble exists, and is due to inflate further before it pops. It's a simplistic view, given that his supplied graph is national in scope, while the market-price-growth figures are a tale of 4 separate cities (Sydney / Melbourne / Brisbane / Perth) with wildly divergent individual dynamics.

But if Sydney pops, and wrecks the Big 4 banks, the rest of Australia will suffer regardless.

:( :( :(
Well yes, he does go the extra mile to express that his perspective is somehow unique, which means he tends to write in a convoluted style that requires his audience to carefully consider what's expressing. That's fine for people who can interpret well, but not so good for those who scan what he says looking for the affirmation of what they want to hear.
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hidflect
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"we now have the lowest short- and long-term interest rates in 5000 years! And ANZ reckons the RBA will cut twice more in 2016."

At this point dropping interest rates is pushing on a piece of string. After Bazza lost his $140,000 FIFO job as storeman and now is earning $70,000 in Welshpool driving a forklift, do you think a .25% rate cut is gonna really help?
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