House prices - down, down, deeper and down

Fri, 16 May 2014  |  

After a tepid 0.3 per cent rise in April, house prices have fallen a somewhat large 0.7 per cent in the first 16 days of May, according to the daily RPData house price series.

While the numbers are clearly choppy, volatile and are not seasonally adjusted (the autumn blues?), we just might be seeing the jolt to consumer sentiment and impaired affordability starting to bite what had been a strong rise in prices.

For now, a moderate house price fall of, say, 5 per cent or so would be small beer. Even with the recent house price pick up, which was looking uncomfortably large, the total change in house prices since 2010 has been a little over 6 per cent. This is not a large change.

That said, the perils of falling house prices for the banking sector and the economy more generally are clear. One only has to look at the experience of Ireland, the US, the UK and Spain, to name a few, to see how a drop in house prices can smash the economy into recession.

It is important to emphasise that a few weeks or even months of moderate house price falls is neither here nor there, but if we start to see house price falls running over 5 or 6 months and the cumulative falls gain momentum and start to get toward 10 per cent, there would be a problem that may be hard to arrest.

Whatever the individual policy merits of the budget, the atmosphere it has created is one of caution and apprehension. The Roy Morgan ANZ weekly consumer confidence measure has fallen more than 10 per cent in just a few weeks. Given there are no hints of a change in interest rates, the stock market and Aussie dollars have been broadly flat, the only explanation for this free fall in confidence is the budget rhetoric and now implementation of confidence sapping measures.

History shows that low levels of sentiment lead to cautious consumer behaviour which shows up in higher savings, deleveraging and slower growth in spending.

Australia has not had a recession for 23 years and the prospects of one are still remote. But if what we are seeing in house prices is the start of a move towards sharper and sustained falls, the banks will be smashed, the still heavily indebted household sector would be bruised and the chances of recession or something that feels like a recession will increase sharply.

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THE LATEST FROM THE KOUK

Will falling house prices trigger the next Aussie recession?

Tue, 17 Jul 2018

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/will-falling-house-prices-trigger-next-aussie-recession-000039851.html

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 Will falling house prices trigger the next Aussie recession?

House prices are falling, auction clearance rates continue to drop and there is a such sharp lift in the number of properties for sale that, for the moment, no one is willing to buy at the given asking price.

Potential house buyers who have held off taking the plunge in the hope of falling prices seem to be staying away, perhaps hoping for further price falls. But also influential factors forcing buyers away is the extra difficulty getting loans approved as banks tighten credit standards, then there are concerns about job security and associated awareness of probable cash flow difficulties given the weakness in wages growth. It is remarkably obvious that house prices will continue to fall and this poses a range of risks to the economy.

Research from a range of analysts, including at the Reserve Bank of Australia, show a direct link between changes in housing wealth and consumer spending. This means that when wealth is increasing on the back of rising house prices, consumer spending is stronger.

This was evident in Sydney and Melbourne, in particular, when house prices in those two cities were booming in the two or three years up to the middle to latter part of 2017. Retail spending was also strong. Looking at the downside, in Perth where house prices have fallen by more than 10 per cent since early 2015, consumer spending has been particularly weak.

Punters point to by-election troubles for Labor

Mon, 16 Jul 2018

 

If the flow of punter’s money is any guide, Labor are in for a very rough time on Sublime-Saturday on 28 July when there are five by-elections around Australia.

In the three seats where the results are not a forgone conclusion, the flow of money on Liberal candidates over the last few days has been very strong.

The Liberal Party are now favourites to win Braddon and Longman and in Mayo, Liberal candidate Georgina Downer has firmed from $4.20 into $2.75.

If the punters are right, Sublime-Saturday would see Labor lose Braddon and Longman and could see Liberal’s sneak back in Mayo.

If so, it would be odds on that Prime Minister Turnbull would go to the polls as soon as possible, not only to take advantage of the by-election fallout, but, from a different angle, go before the housing market and the economy really hit the wall, probably in late 2018 or 2019.

BRADDON

Liberals $1.70 (was $2.25)
Labor $2.05 (was $1.65)

MAYO

Liberals $2.75 (was $4.20)
Centre Alliance $1.35 (was $1.15)

LONGMAN

Liberals $1.50 (was $2.00)
Labor $2.50 (was $1.85)