It’s hard to admit it when you get something wrong.
The fact is, we predicted a huge and painful Aussie house price crash.
With the exceptions of the Gold Coast, some areas in Perth, and the holiday home market, the house price crash hasn’t happened.
So, after getting it so wrong, how come we’re so keen to talk about it? The answer is simple…
While we predicted disaster for the Australian housing market, what we didn’t predict is what’s happening right now.
And that is something much, much worse than anything we could have predicted.
Lower Interest Rates Won’t Help Aussie House Prices
It’s funny, in recent months almost every reason the property spruikers gave to support their argument has collapsed.
One argument they could still fall back on was the idea that the Reserve Bank of Australia (RBA) could cut rates to support the Australian housing market.
But even that argument is dead. After the release of the latest RP Data housing index, National Australia Bank economist Rob Henderson told The Age:
‘Three months after two interest rate cuts, what has happened to house prices? They have fallen.
‘So it doesn’t suggest interest rate cuts are much of a panacea for the housing market does it?’
They laughed at your editor when we said lower interest rates wouldn’t help house prices.
Two years ago we pointed out the level of interest rates was only part of the reason for the housing bubble. The biggest factor was the credit boom.
The credit boom blew up the bubble…the lack of a credit boom would burst the bubble.
So when the credit boom ends – as it has – it would be over for the Australian housing market.
But rather than a crash, what’s happening to the Australian property market is worse. It’s a slow and painful death. The reason it’s so bad is that most homebuyers and homeowners can’t see what’s happening.
They assume because house prices haven’t crashed, they must be doing OK. But according to RP Data, Melbourne house prices fell 7% over the past year.
Add to that interest repayments of 7% and that’s a 14% hit. Add another year of even a flat housing market and thanks to interest repayments, the average homebuyer is down 21%.
We don’t know about you, but in our portfolio any investment where we lose 21% within two years is a bad investment.
As we’ve said many times, at these prices Australian housing is a bad investment.
And if you think low interest rates will help the Australian housing market, think again. You only have to look at the U.S. housing market to see that nearly four years of low interest rates haven’t helped to boost house prices. Will an RBA Interest Rate Cut Matter?
If credit doesn’t expand, the interest rate doesn’t matter…house prices won’t rise.
Even so, the RBA has taken a desperate step to try and boost asset prices. It had an immediate – if short-lived – impact on the Aussie stock market yesterday.
You’ve probably seen the news that the RBA cut interest rates by 0.5%. That cut is the largest single rate cut since the RBA cut rates by 1% in February 2009.
So, was the RBA right to cut?
Why ask us? We don’t know. The fact is, no individual can know what the price of money (interest rates) should be.
The only true way to find the real price of money is to leave it to the market. That financial markets bet billions of dollars based on a decision by a group of faceless men and women is ridiculous.
They can’t possibly get it right. If a free market determined interest rates, the rate would change according to market forces. It would provide a clear signal to investors, letting them know if they should spend or save.
But when a central bank intervenes, investors get mixed messages. And so the market behaves in ways you wouldn’t expect.
It’s hard to admit it when you get something wrong.
The fact is, we predicted a huge and painful Aussie house price crash.
With the exceptions of the Gold Coast, some areas in Perth, and the holiday home market, the house price crash hasn’t happened.
Hi Kris, good to see your still out and about. I really don't know how you got it so wrong on housing either, after all I did tell you almost every day that you were wrong.
In fact you are still wrong, but you can take some comfort that there is or will be falls across the board to differing degrees. Unless of course if China falls over, then we will have that armegeddon you predicted, but you're a China bull as I recall.
I think that you were right to turn off the comments on your site, the comments were becoming caustic, which isn't what anyone wants.
I see that gold and silver aren't doing too well - it's not been a great time for you lately, has it? Things will get better, investors will drift back into equities, and they will need investment advice, so just be patient during this transitional phase.
Add to that interest repayments of 7% and that’s a 14% hit. Add another year of even a flat housing market and thanks to interest repayments, the average homebuyer is down 21%.
What a completely laughable and rubbish statement! Kris may want to research what the "average" LVR for Australian mortgage is before claiming that the "average" homebuyer is down by this mythical figure! Also conveniently forgets to account for imputed rent, ie the 4-5% of the house value the owner would have to pay to rent if they hadn't bought.
Why don't we just stick with the basic numbers? Yes, by most measures the median house price in Melbourne is down 7% from its peak 21 months ago. The weighted average figure across Australian capital cities is about 5% down. Those are the actual facts - let's just stick with those hey and not make up numbers?
Hi Kris, good to see your still out and about. I really don't know how you got it so wrong on housing either, after all I did tell you almost every day that you were wrong.
The folk I know in Melbourne aren't happy with the $900ish they have been losing per week this FY. It has really upset their equity for renovations planning.
Poor things!
WHAT WOULD EDDIE DO? MAAAATE! Share a cot with Milton?
What a completely laughable and rubbish statement! Kris may want to research what the "average" LVR for Australian mortgage is before claiming that the "average" homebuyer is down by this mythical figure! Also conveniently forgets to account for imputed rent, ie the 4-5% of the house value the owner would have to pay to rent if they hadn't bought.
Why don't we just stick with the basic numbers? Yes, by most measures the median house price in Melbourne is down 7% from its peak 21 months ago. The weighted average figure across Australian capital cities is about 5% down. Those are the actual facts - let's just stick with those hey and not make up numbers?
According to the ABS statistics, the ONLY independent stat available prices are down 10%.
Sorry to burst your bubble.
And what a retarded article - house prices are down %10, and accelerating at an alarming rate, every chance we could track or drop faster than the US by the end of the year.
According to the ABS statistics, the ONLY independent stat available prices are down 10%.
Sorry to burst your bubble.
And what a retarded article - house prices are down %10, and accelerating at an alarming rate, every chance we could track or drop faster than the US by the end of the year.
OK I'm happy to use the ABS stats as a benchmark for actual facts, even though their data is laggy and excludes units/semi's (25% of the Sydney housing market for example), it's good for after the fact discussions.
* ABS says Melbourne index peaked at 177.2 during June quarter 2010, currently at 162.7, = an 8.2% decline from peak to now over 21 months. So a bit more that the 7% I originally stated, but not 10% as you have claimed. * ABS says Sydney index peaked at 117.3 during June quarter 2010, currently at 111, = an 5.4% decline from peak to now over 21 months. * ABS says National capital city weighted average index peaked at 149.8 in June quarter 2010, currently at 140.6, = 6.1% decline from peak over 21 months (as Strindberg correctly states).
I still expect the next ABS print to be flat to positive, especially for Sydney, as their data catches up with the other provides who mostly showed gains over the same period.
They assume because house prices haven’t crashed, they must be doing OK. But according to RP Data, Melbourne house prices fell 7% over the past year.
Add to that interest repayments of 7% and that’s a 14% hit. Add another year of even a flat housing market and thanks to interest repayments, the average homebuyer is down 21%.
We don’t know about you, but in our portfolio any investment where we lose 21% within two years is a bad investment.
As we’ve said many times, at these prices Australian housing is a bad investment.
This is just plain stupid. It not like interest payments are all going down the drain. If you don't pay interest you pay rent. If you have an IP you receive rent. Either way, you will NEVER loose 7%.
I used to read Money Morning regularly and I still do at times but after reading it for about two years I think they get it wrong more than they get it right on a macro level. ( Although a lot of their investment tips have ben pretty good)
The thing dooms day sayers all have in common is that they are almost always wrong.
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