Special pleading to commence in 5, 4, 3…..

Australia’s stellar run of property price inflation has come to an end.

The current decline is already the worst in modern history;

So what? Markets are cyclical, trees don’t grow to the sky, etc. The current decline comes after many years of incredible capital gains for those exposed to the asset class. These single digit percentage falls should be of no concern to anyone except those who speculatively bought in the last two or three years or who have taken on extreme levels of debt.

Everyone with a brain and access to standard economics textbooks should have been able to predict that, eventually, there would have been a correction, either minor and slow or major and quick. One way or another, the fact that the double digit percentage increases would not have continued forever should have been news to nobody, not least those paid large sums of money to navigate these markets.

Our old friend Brian “admire my signals of virtue at shareholder expense” Hartzer seems to have been slightly startled by reality, however;

Westpac’s profits flatline, which, to be fair, still means they’ve made a truckload. However, trends are important.

What’s also important is that throwaway line above; “the country’s biggest lender to landlords“.

Let’s pose a question here for Westpac shareholders –

Q. In a falling market, which categories of mortgage debt are least likely to perform well?

If you answered, “the most heavily-leveraged and properties that are not the primary residence of the mortgagee“, give yourself a pat on the back.

Elsewhere Stephen Koukoulas has smashed the glass to get at the emergency alarm button; The next rate move by the RBA should be down.

An RBA rate cut is not about housing – it’s about exports and investment

Many people misunderstand my concern about falling house prices and the coincident call for the Reserve Bank to cut official interest rates.

Well sure, but given that your call for rate cuts conveniently occurred at the point it became obvious these price falls weren’t a blip and, in fact, show many signs of being the new normal for the next year or two, allow us a few moments to consider quite how unbiased your views are.

As for this claim;

The house price declines in the current downturn are much what I was forecasting a year ago.

Are you sure about that? This interview from 14 months ago suggests otherwise;

He’s talking specifically about Sydney prices there. If by “flat” he meant negative 7.5%, then fair enough but that would seem a generous retrospective reading.

Other commentators with an even worse track record are pleading to higher authorities now too.

From the same article, our friend “Doctor” Andrew Wilson (he’s a doctor of property! No, really!) making a prediction so accurate that he got it almost exactly 100% wrong;

So much for a doctorate in property economics. Where was it from, the University of Baghdad, studying under Professor Comical Ali?

Based on that stunning example of incompetence in his core area of expertise, perhaps we might also be allowed to ponder the altruism behind his current pleading for rate cuts;

Economics-wise, that’s just all over the place. Explain please, how lowering rates improves savings rates, for example…..

Bill’s Opinion

Predictions are a fool’s errand on something as complex as an economic system.

We can, however, provide a conditional prediction here today of which we are extremely confident;

Should the decline in Australian property values continue, the current low whine of calls by vested interests to lower interest rates will become a defeating cacophony as they claim it’s in the best interests of the entire country, not just themselves as they are staring down the barrel of large paper, possibly soon to be realised, losses.

The pips will squeak.

17 Replies to “Special pleading to commence in 5, 4, 3…..”

  1. There is no way that the tiny proportion of Southerners that bought recently will be selling down at a loss, they never do, it’s the Aussie spirit, hunker down, keep muddling along and making the low interest payments. Most wouldn’t even know if they were upside down and even if they did they would also know that the mortgage being full recourse down under would hurt them to sell. And why wouldn’t they hunker down and live the dream with economic growth at this rate keeping employment high, why the fuck would they bale out, cop a loss and then move into a rental property and pay down a clever landlords mortgage instead.

    So homeowners in the mortgage belts won’t sell, home owners in middle ring won’t sell, home owners in inner ring will just have to knuckle down and snort less coke, and it’s a bit wishful thinking to think that there are gazillions of investors with a portfolio of 100%LVR gaffs just about to learn how to play dominos.

    The thing is the economy is actually strengthening, plus 3% growth means higher employment, means folk can continue to pay off their mortgage.

    I would say the worst of the banking RC and Wetspacs woes are behind them, yes they all took a token clip in wages and bonuses to keep the proles happy and yes the commissioner is going to have a yarn with them all next year but as always the banks will be saved and the people ruined.

    It’s all about first home owners now making the bold step to financial freedom and getting on the ladder during this next year of buying opportunity. Look at Westpacs deals and the growth in the loans books for this cohort

    Interest rate predictions are stupid as well, because if you knew what you were talking about you would be a billionaire by now but I can’t see them lowering them either, we always follow the US the lag may vary but we always follow them.

    How do you post charts or images here?

    1. “The thing is the economy is actually strengthening, plus 3% growth”

      Therefore interest rates will rise, either because of the RBA or the bank funding rates.

      Is that positive or negative house prices?

  2. If rates are rising it means the economy is growing so rents as they will are also be rising, so yes it’s a good thing for housing values. It’s also good for share market values as well.

    1. So, in summary;
      – low rates are good for property prices.
      – rising rates are good for property prices.
      Ok, thanks.
      Perhaps you could let The Kouk know of this axiom before he continues to make a further tit of himself by hectoring the RBA to cut rates to save the economy, not for himself, you understand, but for the greater good.

  3. Hey Billy,

    I knew you would come back with that, you are missing a few dynamics of an economy.

    The last seven years of very high growth in property prices has been exceptional given that it was trousered in such a low rates ie low inflation environment, it may well be go down in history as the official large one. If and when the RBA starts to increase rates (commercial banks can and have raised and lowered out of whack with the RBA) it means two things according to their remit, that inflation an underlying was below their target and it was conducive to increasing employment.

    So if rates are rising it means that the economy is booming, wages are rising and prices are going up, this includes the price of rent and the price of gaffs although gaffs aren’t in the inflation basket. It also means that those that own a property and have a mortgage on it are far better off as well. This is due to them taking out a mortgage when inflation was lower, as over time the real value of that mortgage and repayments has been eroded by the inflation worker bees 24/7 tireless efforts, whilst at the same time those same bees have managed to inflate the value of the asset and its income stream . In my view investing in property is just playing the inflation game and letting time make you wealthy, houses are merely needed to secure the mortgage. I am also from the never ever pay down investment debt camp as well for this very reason.

    All I am doing here is dispelling the myth that rising rates are bad for house price and rental inflation, which is not true.

      1. I can’t wait for this one to be released down under, I think I will treat the family to a gold class cinema viewing when it does.

        Powerful………the most important Irish Film of the Year……….

        Coming to Australia soon

        https://www.youtube.com/watch?v=4aY-lAukEUs

        ……………………………………………………………………………………………………………………………………………………………………………………………………………………

        Roddy Doyle: On new film Rosie and the Irish housing crisis

        Written by acclaimed author Roddy Doyle, Rosie is a powerful and affecting examination of the Irish housing crisis.

        Now essentially an Irish institution, novelist and screenwriter Roddy Doyle published his first book in 1987 and has remained a vital voice on the Irish arts scene ever since. His novels and screenplays were instantly popular, not just for their sense of humour and their emphasis on social issues, but also because Doyle represented a voice that was all too often overlooked in literature: that of the working class.

        Tomes such as Paddy Clarke Ha Ha Ha, Smile and The Woman Who Walked Into Doors have tackled such issues as family struggles, clerical sex abuse, and domestic violence. More of his work has been adapted and immortalised onscreen, including The Commitments, The Snapper and The Van.

        Doyle’s latest project, the Paddy Breathnach-directed drama Rosie, again captures a very particular facet of modern Ireland: the struggles of a family to find a home in the middle of the housing crisis. Starring Sarah Greene and Moe Dunford, Rosie is an empathetic exploration of the obstacles facing working class people in Ireland, and how our broken system can leave hardworking families extremely vulnerable.

          1. I must admit that I have been following the unfolding of this Irish housing crisis quite closely since their PM let the NAMA foxes loose among the chickens after they had fixed up their bad bank paperwork. Although they couldn’t have done that well as I know I guy out here that still owes them in excess of E90m and hasn’t heard boo from them, suppose that makes him clear now.

            The fastest wage growth in Europe, sky high and still rising rents, housing shortages, individual wealth now back up above the pre-GFC levels and Dublin houses up 90% in six years all go to prove David Ricardo’s theory of economic rent or “magic pudding” as it is more commonly known still applies in this former colony.

            If things keep growing at this rate they they will shortly be calling for a repeal of the Corn Laws.

            The best bit of all is that their main real estate website is called Daft.ie

            …………………………………………………………………………………………………..

            Ireland’s ‘bad bank’ set for new role as property developer

            The “bad bank” created to clean up Ireland’s banks after the country’s property boom turned into a financial crash a decade ago is set for a new lease of life: as a state property developer.

            https://www.ft.com/content/50df17f2-9a10-11e7-a652-cde3f882dd7b

          2. “ I know I guy out here that still owes them in excess of E90m and hasn’t heard boo from them”

            What’s the statue of limitations in Bogtrotter land? Have they managed to serve any official document to him since?

            It’s 7 years for most places, with the exception of student debt which seems to be the modern version of indentured labour.

          3. I think he is in the clear now as NAMA has shut down and fixed it all up. NAMA did come out here and interviewed some of the knackers, I don’t think he was interviewed and even if he was he was not the type to worry about it either. He was our CFO, but we had to let him go when we found out that he was setting up some other firms, they weren’t in competition with us but still it was a bit naughty of him and in contravention of his contract.

            He had some weird scheme whereby he and a few other Irish wide boys, get a visa in Oz through Dubai and it somehow stopped them having to declare bankruptcy. I met a lot of paddy’s out here post GFC that were looking to invest large chunks of cash. Most of them have acreage, horses and chickens here, that makes them a primary producer and subject to lower taxation. I also seen a picture of him at the Galway races with designer wellies on, he used to arrive by chopper. He owned a bit in Canvey Island and Birmingham as well as his Irish holdings.

            Since he left us, he has set up a few other businesses one of them is in competition with us and he bought a brand new pub in West End which is going gangbusters, he invited me to the opening. He was our CFO when our Sheikh bought in, I can remember quite clearly when our MD said that the Sheikh was a billionaire and he said that we would make him a millionaire!

            I know his debt level for a fact because I cleaned out his office after we booted him out and I read his tax return, he was on a relatively good wicket with us and never paid any tax and we had the letters from the ATO directing us not to deduct any income tax. I am familiar with our return system and pay as you go adjustments as I do the same, that is when I seen that he had a loan for E90m of which the interest payments were greater than his earnings, hence the ATO had adjusted his marginal income tax rate to zero. He worked for us for two years and never paid a cracker in tax when he did.

            I kind of liked him, he was sharp as a tack, very quick on his feet, its a shame he couldn’t have just stayed on the right side of the line. I helped his daughter when she broke both of her wrists when she fell horse riding and gave her some meaningful duties to do for our firm to get her feeling good about herself again. He had a lovely family, one of those blokes that you will never forget coming across. The last time I seen him was when I arrived in Roma a few hours early for a flight to Brisbane and I clocked him in a pub with a bloke from a company similar to ours that he was acquiring, having seen him I didn’t go in the pub. But he was on the same flight as me back to Brisbane as me and was sat next to me, we had a few bevvies in the lounge and a bit of laugh on his success suing my boss on the terms of his departure. I still mention to my boss that I got the knackers lawyers number just in case. The guy that he was with in Roma and on the flight, he ended up not buying that firm but somehow stripped cash out of them and I heard that they will all need to work into their older ages as their little nest egg was now gone forever since they met with him.

  4. Daftie confirms it.

    Unwanted new records as rents surge 30pc higher than during Celtic Tiger

    Rents have risen 30pc above Celtic Tiger rates and reached a record high for the 10th consecutive quarter, according to a new report.

    The findings by Daft.ie don’t expect the rental hikes to stop any time soon.

    https://www.independent.ie/business/per … 17766.html

          1. It demonstrates the timeless infallibility of David Ricardo’s Classical Theory of Economic Rent. Which is a major aspect of land economics that has always being missing from the many analysis that you have done on this subject.

          2. Thanks for the unsolicited correction on a point I wasn’t making.

            Can I offer some advice in return?

            If you find yourself writing opinions on the internet after midnight while there is a warm body lying in your bed, you might have a couple of priorities the wrong way round.

            By the way, have you moved to the Gold Coast?

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