This is a knavery of them….

So said Bottom.

There’s another bottom around, apparently:

Sydney’s biggest correction in house prices since the 1980s should be over by year’s end but there is no sign of a return to boom times, according to new forecasts.

Ok. I’m sceptical but let’s hear their reasoning behind this.

Domain’s property price forecast for June 2019, released on Wednesday, expects median house prices in Sydney to bottom out at just about $1 million and median unit prices to dip just below $700,000 in spring.

I don’t want to play the man not the ball here but isn’t Domain’s entire raison d’être to sell property?

The market is tipped see a modest turnaround next year, a forecast supported by low interest rates, strong population growth and ongoing low unemployment. 

House prices are expected to increase by 3 to 5 per cent over next year, while unit prices are forecast to rise by 2 to 4 per cent.

The thing about predictions, as the American mathematician Stanislaw M. Ulam famously said, is they are notoriously difficult, especially about the future.

Domain economist Trent Wiltshire said the trifecta of an interest rate cut, the Coalition’s election win and potential lending rule changes helped the market bottom out sooner than expected.

Yes, all three of these are potentially good news for property prices. I suppose the missing question and answer is, are any of these actually the most important factor driving rises and falls in the asset class?

“The big factors contributing to prices bottoming out is what has happened in the past few weeks … it turned around the market’s thoughts,” Mr Wiltshire said. “People will be able to borrow more and that should follow through.”

Quite, Mr. River for a Firstname, County for a Lastname, “economist” for a property services website.

Perhaps people are able to borrow more, having the resultant flow on for prices as demand increases. It doesn’t necessarily follow they will borrow more though.

More on that later.

By the way, who knew that a market was a sentient being with thoughts? Hello Skynet.


Sydney’s auction clearance rate is at its highest in more than a year.

Don’t, whatever you do, mention that volumes are half of what they were at the peak and those few properties that do sell at auction (rather than sold privately earlier and then added to the highly-fictitious figures) are sold because they are being greatly-discounted to meet the market.

ANZ senior economist Felicity Emmett said the forecasts were in line with her expectations.

There’s a prediction we will return to in a year or so then.

Economist Stephen Koukoulas said it was more likely for property prices to see zero or negative growth than a dramatic turnaround next year.

Nice to see The Kouk has stopped trolling and returned to reasonable market commentary now he’s come to terms with not landing a plum government advisory job for the duration of this Federal term.

One has to love the use of “negative growth” there, if only there was a shorter, more commonly used synonym in the vernacular. I don’t know, something that rhymes with tall and is a homonym for autumn in American-ese….

Anyway, back to that minor factor impacting property prices; lending.

For reasons of incompetence or mendacity, most commentators talk about supply and demand as if the latter is simply a function of sentiment.

In a real world where most purchases are leveraged through borrowing, demand is less about what one would like to buy and more about what the bank will lend me in order to buy.

So, the RBA’s lending figures have been published for calendar month May. What’s the data saying?

Oh dear, that wasn’t supposed to be story.

Here’s the updated Are We There Yet, Mum? Index;

Now, obviously I’m not as educated and clever as someone employed as the “senior economist” for ANZ or “economist” for Domain but it would seem to me one of two things need to be true for property prices to stop falling and then begin to rise, either;

  1. The blue line on that chart needs to reach the 0.4% hurdle and stay there or above for at least a couple of months, but probably much longer, or
  2. A new magical source of funding is found that doesn’t involve domestic banks.

As you were, people, as you were.

48 Replies to “This is a knavery of them….”

  1. I am in the interesting position of being able to see the lifestyle adjustment of a portfolio of real estate agents happen in realtime. The Kubler-Ross model is mostly real. The most fun, but mostly rare cases, are mental constipation at stage 1. At least for a while.

    Responsible lending will kick the can down the road, but eventually you run out of money, or other sources of capital. Mainly irresponsible lenders (Prospa, etc).

    While this means I should have an informed view on property markets, I am struggling for a position that has genuine conviction. I am not alone. There are factors both for and against.

    The APRA stats are good, but a lag. They record the outcome, but not the conditions that lead to the outcome.

    Banks remain constrained by a range of factors, but need growth in assets to generate anything like the divided growth their shareholders seem to need.

      1. Didn’t see that. Market has flattened here on reduced stock. Few auctions I attended as an interested neighbour earlier in the year didn’t get a bid. But I have seen others sell in private treaty. Feedback from local developers two months ago was prices were down, and they would hold and rent. For those with the liquidity and not too much gearing this works.

        Overall I am watching unemployment, and migration, for credit issues and demand support. Supply has its own issues. World remains full of liquidity chasing yield, and while it seems a bit warier of Australia than last year, it needs to go somewhere.

        1. What do you think about that sale, do you know the area, local market strength and that kind of stuff. I am fairly across the Melbourne market and have one there, just interested in a neutral view on the record sale price. My gaff is down 10% in value, from top.

          Hold and rent or hold and live until market improves is the major difference from say the share market, people must live somewhere and even when they sell, they cant opt out and need to buy or rent after the sale. That’s the market floor. Whereas you could wake up one morning and everybody has decided that they no longer need to hold say IBM shares and that the end or massive reduction of of your capital, if you didn’t get out in time.

          1. That sort of price is atypical for the area, per the article. The location is good, the pool seems to attract people who pay and the modern design also lifts the price. It should also have a view and is close to transport. A couple similar to that a few metres from me (so on the other side of High St to the place above) have gone for less, but still >3.2m. One has a pool about 8 metres from one of the busiest through streets in the area. So relaxing.

            Builder/developers have definitely seen prices for development blocks come off early this year, with some anecdata being a 20% to 30% drop for some of these. We have developers stuck with a few who now can’t/won’t sell their developed places and are renting them. So they are holding these where they can, but are slower to buy more.

            On the apartment book, we are seeing pre-sales slowing for the bigger resi blocks all across the metro area but more so in the city. Downscaler blocks in the wealthy areas doing ok for the quality builders.

            It is all still a bit fucking mental to me. The stamp duty on these things is more than I paid for my first house, in 2001. So it’s not like I am reminiscing about the 60’s.

          2. Thanks for that, that kind of money for 705m2 is a resounding vote of confidence in the market, its got to be a good omen for the inner ring established homes closer in. Melbourne to me has always been a quite and steady performer.

            Just imagine what our children will be saying about house prices in 2038!

    1. “The APRA stats are good, but a lag. They record the outcome, but not the conditions that lead to the outcome. “

      Sorry, I meant to reply to this earlier. They’re RBA stats not APRA. My view is the lending figures are a lead indicator, leading the transactions by about 2 to 3 months.

      I’m curious as to why you’d think they were a lag indicator?

      1. My mistake, however I am fairly sure the RBA get some of these stat’s from the monthly APRA returns, that are published in similar schedules. While it wouldn’t surprise me that both agencies collect separately, I think APRA shares them.

        More importantly, I see these as an outcome of a set of conditions and attitudes that created more lending. They are an outcome, not an input. Though then in turn they become an input into the potential rise of house prices – Steve Keen’s credit impulse which to simplify is more about acceleration, if I recall. Likely the key input in Australia, in most times. They will lead house prices, which I gather is your point, but may be preceded by other factors, is what I am saying. The banks/founders will typically always want to lend, but are constrained by regulation, access to funding, pricing, borrower animal spirits etc.

        Probably not being that clear here. The challenge is finding out what leads credit growth, given the changes in market influencing factors over the past year or so. There are lots of models out there for this, but some things appear a bit different these days. Until they are not.

        1. Gotchya, thanks.

          Yep, multiple factors and, as you say, what might have worked before might not in the future.

          I like the simple combination of lending for lead and prices for lag as a “when should I buy?” indicator. I’m sure it’s not scientific and doesn’t help split out the area specifics but it helps cut through the daily commentariat noise.

        2. “The challenge is finding out what leads credit growth”

          Buyer demand leads credit growth.

          If you look at the top of the last cycle, first there was a Mexican stand off whereby buyers were no longer prepared to pay the ever increasing prices being asked, volumes drop, sales fall over, prices recede, then credit contracts.

          Demand always leads.

          1. Is that a circular argument though?

            What’s the chronology of an individual in that process? What order of events occur in their decisions actions and transactions?

          2. The overall and longer term credit cycle could be referred to as circular, but the amount of credit being created is driven by demand, the decision to purchase always leads.

            1 – Potential buyer identifies property that they would like to purchase.

            2 – Potential buyer and seller negotiate an agreed market value, the sales price.

            3 – Buyer raises finance to complete the purchase.

            See chart showing longer term demand level for credit and the sharp contraction following the last peak in house prices.


          3. Step 0 – The buyer seeks pre-approval for a loan.

            The question I suppose neither of us have answered here is, does the RBA lending figure include the finance at step 0 or step 3?

          4. My understanding is that the loan figures are only taken up at step 3, the point where the lender completes the double entry account transaction is done, ie the lender creates the loan amount as an asset on their books.

          5. I just tried to find out but it really wasn’t clear from the RBA or APRA websites whether it’s counted when “provisional” or “actual”. Let me know if you can find it.

            It’s quite relevant though because, if it’s at step 3 it’s more of a real-time indicator than lead. i.e. prices will move simultaneously.

            The Core Logic data is in today; Sydney dwelling (i.e. houses and apartments) went back into positive territory (0.07%) in June due to a rise in apartment values. Presumably not Opal Tower and the other one!

            Houses are still negative, so make of that what you will.

            I’ll update the chart next month when the RBA and Core Logic data are both refreshed.

          6. “due to a rise in apartment values”

            What I suspect is happening here is that is due to the previous oversupply in apartment stock now been taken up, the big drop in prices that apartment experienced has now stopped . Coupled with the fact that development approvals have dropped off a cliff of late, means that there wont be any shovel ready developments commencing, augers well for the next new supply shortage emerging.

          7. Possibly.

            Another explanation is a bunch of investors were holding off until they learned whether Labor (sic) had got in or not.

            If that’s true, we might see a dip in July or August’s data.

            I can think of few investments I’d enjoy less than owning an apartment in Sydney….

          8. “It’s quite relevant though because, if it’s at step 3 it’s more of a real-time indicator than lead. i.e. prices will move simultaneously.”

            But even then it will still be about 90 days after the sale was made. 30-60 day settlement period before the loan is drawn down.
            Then at least a month for it to get reported up in a monthly report.

          9. Ok, if that’s more true than false (obviously the elapsed time differs case by case), than you’d expect to see the price data change in lock stop with the lending data.

            I’m not sure that’s what the two lines are showing. It looks to me like there’s a couple of months lag after the lending value changes before the prices change in the same direction.

            What do you think?

          10. I think that Sydney is at or near the bottom and prices will stop experiencing negative growth and will bump around at that price level. But wouldn’t be expecting price rises for the foreseeable. It’s Brisbane’s turn for that now.

          11. Okay here is the proof that lending lags buying.

            See last twenty years number of property sales per quarter. Shows that current number of sales is only half of what it was at last peak. So there is a huge leg up still to come and that isn’t even allowing for increased population.

            We know that lending is down big time, this has already been shown.

            Australian property sales at lowest point in two decades

            What you will see next is lending increasing as numerable of sales increase, I know it sounds stupidly simple but it is that simple and yes it lags actual sales and its all starts with buyer demand. Buyer demand is currently half of what it could be.

            The quarterly report is a sufficient period to monitor the overall trend. Especially given the 90 day lag from purchase to the time a loan is drawn down and reported up.

            Now as to are we there yet, well if you use the most current data on the increase of new property sales and I know that is not all properties, as an indication, then the ScoMo Bounce TM is baked in. looks at this one below and put it on the five year time frame to see ScoMo’s hardon in all its bare and vibrant glory.

            Australia New Home Sales

  2. 3. Stock on market reduces.

    Cant see any kind of uptake of investor buying in Sydney in the near term, much better investment buying elsewhere.

    Good time for homeowners to get in though, as for maxing out on loan capacity, home owners tend to bid up prices and max out their finance more so than investors. Investors purchasing decisions tend to be on the numbers, whereas homeowners buy more so on emotion eg Bill I really do prefer the one with the huge en-suite and Hamptons style kitchen, it may be above our original budget but why not buy it if we an afford it?

    Good economic news coming out on the China trade deal talks at the moment, the thirty year continuous growth speech now looking more likely than not.

    1. “Good economic news coming out on the China trade deal talks at the moment”

      And yet the commentariat are calling stock market crashes every day. I suppose bad news sells.

      We’re long stocks at the moment, as that’s what the technical analysis suggests.

      Edit; to clarify, not Aussie stocks.

  3. “I suppose bad news sells”

    Buy the rumour sell the news.

    I am going through a lazy phase right now, stopped trading three months ago when I went on holiday and haven’t had the motivation to restart and I have some cash sitting around doing nothing. Plus I am conscious that the last quarter has been the best time to be playing Aussie stocks, in along time. I am fairly restricted to what offshore shares that I can buy through through my super.

    1. I outsource my financial decisions (well, advice anyway) and concentrate my efforts on what I’m good at.

      The talk at the rugby today was all about Izzy. Not much support for the ARU. Actually, none.

  4. This one from Herron Todd White, who usually get their predictions right.

    Lets hope for a rate cut tomorrow, and income tax cuts later in the week.


    Capitals hit bottom of property cycle

    The nation’s major mainland capitals are at the bottom of the property market after months of declining clearance rates, price falls and weakening market sentiment, according to analysis by Herron Todd White, one of the nation’s largest valuation companies.

    1. Remind me again how they get paid?

      Property valuation services has got to be one of the strangest businesses going. Basically, read some reports and tell the bank what they want to hear….. which is that our liability insurance is adequate to protect you from us making a terrible mistake.

      1. Generally they act on behalf of and are paid for by the lender, they do quite often value down, putting the gap on the buyer or preventing the buyer from over paying. I get three free ones a year with my bank package. Valuations are already going digital, so a drive by may no longer be required in the not too distant future.

        A colleague of mine is moving his family out of Australia and selling up to speak, he is a non resident for tax purposes here and didn’t really want to attract any unwanted data matching attention or seller commission on sale. We looked closely into the situation of my youngest son buying it off market based on a market valuation. I would 100% guarantee his loan, he is only 17yo and not officially earning, would be miles ahead with getting a CGT free asset at such a young age and my colleague would vendor finance the say 30% gap and stay off the radar somewhat. He decided last week to rent it out instead, which is what I would have done if I were him. But I was quite happy for my son to buy it at the independent valuation price.

        1. Two passports make tax planning far easier, I’ve found.

          I’m with Kerry Packer when it comes to tax.

          1. Just be very, very careful the ATO came close to being my undoing and I was right in the end although I rolled on one point so the intial asssor could save face. You can only be a tax resident of one country at a time, the rules in Australia make it near impossible to become a non-resident for tax purposes especially of you have family here. Even little things like they have a Medicare number, your phone account, may well mean that you are an Aussie for tax purposes.

            I will probably do some long term consultancy work for that colleague of mine that I mentioned above, and it well be on a pie and mash basis, and I am talking the folding stuff.

          2. I was once not a resident for tax purposes of ANY country.

            Now that’s the way to save money.

          3. But it comes with your consent to unrestricted rum, sodomy and the lash, there is no such thing as a free lunch. And uninsured piracy risk.

          4. My missus made me give up rum as well, she hates the smell of it coming out my pores at night.

      1. S&P soaring as well?

        Your investment return up further in Aussie dollar terms?

        Tax drop, day rates up due to your clients having more funds?

        Mortgage, Homestar home loan at 2.99%, a big spread on the banks rates?

        1. I moved my Super to the UK to be managed by the bloke who moved us to 100% cash in late 2007 allowing us to maximise the best BFD opportunity in a generation.

          I’m no financial genius so I outsource that to those with an excellent track record in booms AND busts.

  5. I have posted some info to demonstrate linkage and timing between buyer demand and loans, I think it is still sitting on one of your censors desk, are they on a work to rule these days?

      1. I will go out on a limb here and say that this is as close as you will get to someone ringing the bell that the Sydney market is bouncing around the floorboards. Good time to buy and a minimal risk of capital loss post purchase these days, even if we were to go into a mini-recession.

        1. I’ll read your links later this weekend and respond.

          My current view is, even is the very bottom is today, we will be bouncing along there for a long time.

          Happy to be convinced otherwise though, I have no emotion invested in it.

          1. Why?

            Population growth? New industry? Lending specific to the worst part of Queen’sland?

          2. The land price cycle, we have had fuck all growth worth talking about up here for a very long time.

            Tripple whammy of floods, GFC and commodities correction all at the same time. We are linked to commodity prices, but are not a one horse mining town like Perth either.

            Lots of big things coming to fruition shortly which will improve our economy, the associated increased earnings and profits generated will find themselves into bidding up land prices. Lots of southern inventors up here now buying rentals already.

            Twas ever thus.

            David Ricardo – Theory of Economic Rent


          3. Lots of retirees from Victoria and NSW moving north but I’ve not heard of them stopping in Brisbane. Noosa seems to be heating up though.

          4. Noosa is a tiny market and yes its been booming for some time, the growth will unfold up here just as it has before.

            “History Does Not Repeat Itself, But It Rhymes”

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