My house price bet with Tony Locantro - an update

Mon, 01 Apr 2019  |  

This article first appeared on the Yahoo Finance web page at this link: https://au.finance.yahoo.com/news/aussie-property-crash-looking-even-unlikely-heres-021138614.html 

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My house price bet – I’m very happy and getting ready to collect

I recently made a bet with Tony Locantro, Investment Manager with Alto Capital in Perth on the extent to which house prices would fall over the next three years.

Just to reiterate, the bet centred on Locantro’s view that prices would drop 35 per cent or more by the end of 2021 from the peak levels in 2017, a forecast that looked absurdly pessimistic given the raft of factors that influence house prices over the course of years.

For Mr Locantro to win the bet, house prices measured by the Australian Bureau of Statistics on a quarterly basis in either Sydney, Melbourne or for the average of the eight capital cities would need to fall by 35 per cent or more from the peak levels by the time the December quarter 2021 data are released. The ABS released the latest residential property price data last week which presents an opportunity to see how the bet is unfolding, admittedly with three years to go until it is settled.

As everyone knows, house prices are falling in most cities, reversing part of the boom over several decades.

According to the ABS data, and in terms of the bet with Locantro, here is the latest scorecard:

                    Date of peak           Total fall to date - December quarter 2018  

Sydney            June quarter 2017               9.1%

Melbourne       December quarter 2017      6.4%

8 Capital Cities December quarter 2017     5.1%

To date, the run rate suggests prices will not fall by anything near 35 per cent. In other words, the decline in house prices has to accelerate from now and be sustained for the peak to trough decline to exceed 35 per cent. While there is a slight risk such large falls will occur, it remains very unlikely that the housing market will experience such a crash.

Here’s why

There are several basic reasons for this. Interest rates are low and are likely to be cut further which will put a floor under demand. At the same time, the improvement in affordability from the lower house prices, plus moderate incomes growth has seen first home buyers take steps into the housing market.

With a large pool of potential first home buyers eagerly waiting on the side lines, with deposits at the ready and finance approved, an important source of support to housing is likely to materialise over the near term and the next few years.

The other important issue suggesting a bottoming on the housing cycle in the next year is the current slide in building approvals, which will severely curtail new supply. Any over supply that currently exists will not last for long with Australia’s population still growing by around 300,000 to 350,000 people a year.

Those people will need to buy or rent a dwelling meaning a floor under prices is likely to materialise as new construction of plummets.All up, it looks like house prices will remain weak for another 6 to 12 months until these stabilising influences start to impact.

This means that peak to trough prices is likely to be around 15 to 20 per cent at most which means a large margin in my favour as the bet draws closer to settlement.

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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   

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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.