So far in the house price slump, of the three markets in question, the largest fall has been recorded in Sydney – which is down 12.7 per cent, with Melbourne down 9.9 per cent. The 8 capital cities fall is a more moderate 8.0 per cent.
Quite clearly, this is well short of the 35 per cent threshold which framed the bet although there are still 2 and three-quarter years to go until the bet is closed. That said, the more up-to-date house price data from Corelogic points to small price falls for the June quarter, including a potential bottoming in prices in the month of June. It should be noted that the recent interest rate reductions from the banks, the relaxation of credit restrictions and the probable lift in housing demand from investors who may have been more cautious prior to the Federal election are all factors that are likely to have a positive effect on prices over the more medium term.
While there appears to be a good case to suggest house prices are near a bottom for the cycle, there are still risks around the macro economy and therefore prices. If the global economy stalls in the wake of trade wars or there some other shock, the Australian economy and the housing market would be adversely impacted.
Concerns also come from the weakening in an already weak labour market. If the unemployment rate keeps rising and gets close to 6 per cent, loan arrears and pockets of ‘forced selling’ could emerge to drive dwelling prices sharply lower.
But for now, I am very happy with the way my bet with Tony is panning out. Happy not only for my own sake, but happy for the economy too, because if Tony is to win the bet and prices drop more than 35 per cent, it will mean a nasty recession, sky-high unemployment and pain for many businesses and in the community more generally.