Memo to RBA – be careful what you wish for. House prices are falling

Fri, 19 Jan 2018  |  

The recent house price data from Corelogic are showing further falls in house prices.

The falls are, disconcertingly, most evident in Sydney where prices have dropped 0.5 per cent so far in January, which brings the aggregate fall since the September 2017 peak to a chunky 2.9 per cent. This means that for a $1 million property in September, the value has fallen $29,000 in just 4 months.

The house price weakness is not confined to Sydney.

In Melbourne, the Corelogic data shows house prices topping-out. Prices are down 0.3 per cent from the December 2017 peak which, to be sure, is not a large decline after the stunning increases of previous years, but a fall it is.

Brisbane prices are basically flat with no change over the past 3 months and no hint of a pick up in the early part of 2018.

Prices in Perth continue to trend lower, with a 0.3 per cent drop over the past 3 months bringing the cumulative decline since the late 2014/early 2015 peak to around 11 per cent. Ouch!

Of the five cities that Corelogic covers on a daily basis, Adelaide appears to have some modest momentum. But that said, prices in Adelaide are up just 0.3 per cent over the past 3 months and are up just 2.7 per cent over the past year.

The so-called 5 capital city aggregate index has fallen 1 per cent from the October 2017 peak.

This is big news. At one level, the fall is welcome and something the RBA and regulators were hoping to see as it wanted to take the heat out of what was an unsustainable book in house prices. The tightening in lending for investors and clamp-down on interest only loans are clearly biting. At another level, falling house prices are scary. A slump in house prices intensified the recessions in many countries during the recent financial crisis. Look at the economic horror in the US, UK, Spain, Ireland, to name a few.

It is safe to say that if prices in Sydney and / or Melbourne were to fall 10 per cent, there would be financial pain and hardship which would permeate through to the broader economy.

While some softening in the housing market is welcome, beware!

Oh, and by the way, it makes a mockery of those looking for interest rate hikes from the RBA. (I note the futures market has 50bps of hikes priced in by June 2019!) Nothing would be more reckless and irresponsible for the central bank to hike official interest rates when the housing market is under so much pressure.

comments powered by Disqus

THE LATEST FROM THE KOUK

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   

---------------------------- 

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced. 

What's ahead for the Australian economy and markets in 2020

Thu, 02 Jan 2020

What's ahead for the Australian economy and markets in 2020

Happy New Year!

2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.

It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community. 

2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.

The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.

In terms of the specifics, I have broken down the 2020 outlook into a range of categories and given a broad explanation on the issues underpinning the themes outlined.

GDP Growth

It’s a positive outlook. A pick-up in GDP growth from the current 1.7 per cent annual rate is unfolding, with the only real issue is the extent of the acceleration.