Cheer up!

Switching on the news and browsing the media websites this week is unusually depressing. Without perspective and a wider source of information and analysis, one could be excused for thinking the world is going to hell in a handcart. I’m not going to list the reasons why one might be feeling low, the media do a good enough job of running “if it bleeds, it leads” stories. 

In any case, I’m not convinced it’s true. In fact, I think the reality is almost 180 degrees the other way; there are far more signs things are going well and what we’re being served as news is simply a mixture of confirmation bias and a logical reaction to incentives. A regular browse of the good news stories on Human Progress is a useful counter to the media confirmation bias.

I don’t say this lightly…. I have become convinced, via conversations with friends, family and colleagues that the media business model, what is left of it, has become detrimental to the general mental health of the world.

Technological advances have resulted in a proliferation of volume (24 x 7 updates) and sources (you’re reading a personal blog, but it’s still “a source”) of news. Our old friend, Pareto distribution, drives eyeballs and clicks to those presenting the most compelling new information.

Not much bad stuff happened today” is not a headline we’ll continue to tolerate on consecutive days for very long.  

Let’s lighten the mood a little today then. Because it’s human nature to take pleasure at others’ mild misfortune (after all, that describes the basis for all comedy), today’s blog post is simply a bunch of happy predictions I am prepared to make and the timeframe within which I expect them to occur. 

If you share my optimism and outlook, they might cheer you up immediately. If you don’t, you might experience the even greater pleasure of delayed gratification when the deadline passes and you can return to the comments section and have a chuckle at my expense. 

Either way, I will benefit from a warm feeling of selfless, righteous altruism….

Bill’s Opinion Predictions

Sports

The Bledisloe Cup match this weekend will be won by Australia and, if this prediction transpires, they will go on to draw or win the return match the following weekend and therefore finally win the Bledisloe Cup for the first time in almost a generation. This one is a long shot and is based more on a feeling New Zealand’s team has become fragile and somewhat “woke”.  

The 2019 Rugby World Cup will be won by a northern hemisphere team. My preference would be England but I could probably live with it being Ireland and, after a little introspection and professional counselling, even Wales. The important point is, it’s not going to be New Zealand.

Brexit

Britain will leave the EU on October 31st without a deal. Boris Johnson will be Prime Minister at the time, but will call a General Election in January and will be returned with a clear but not large majority.  

No material changes will occur to the border between Ireland and Northern Ireland.

Britain will not experience significant disruption to trade or travel as a consequence to Brexit. Some luxury or highly-specialised goods or services might have a wobble but will be solved within a few weeks.

EU

As a consequence to the world not ending after Brexit, the EU will double down on their commitment to a European federal una-state, passing laws to ensure a single taxation code, a European military, centralised control of immigration and further adoption of the Euro.

Leo Varadkar will be ousted as Taoiseach by the Dáil before Christmas 2019 as a reward for being played by the EU with regards to Brexit.

USA

The Democrats will nominate Elizabeth Warren as the 2020 presidential candidate. Donald Trump will win a second term with an increased share of both the Electoral College and the popular vote. The presidential debates will comedy gold on a par with the best efforts of Monty Python and Ricky Gervais.

Media

Following the USA elections, there will be some high profile media casualties, with a consolidation or bankruptcy of several high profile brands such as CNN, MSNBC, The Washington Post and the New York Times.

In other countries, such as Canadia and Australia, several mastheads and broadcasters will be further subsidised or even nationalised.

Global Economy

Despite the continuing call for a global stock market crash, higher highs will be reached on the major indices. Gold and silver will see a 20% increase by the end of 2020.

China will “lose” the trade war with the USA. This will be spun as the opposite to save face but the trade indicators will show a material improvement towards the USA.  

Australian Economy

Flat as a pancake over 2019 and 2020 with a slight uptick in unemployment.

House prices in the two main cities will continue a slow atrophy with the occasional dead cat bounce for a month or two which will be lauded as signifying the “new bottom”. At the end of 2020, prices will be lower than today.

 

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.

Meanwhile;

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.

There seems to be an obvious solution waiting to be found

The new oppressed class living amongst us is, apparently, single people.

No, don’t laugh. It’s true; The Sydney Morning Herald managed to find space between the Folau-dering to published an article about it, so it must be correct.

Grab a coffee, settle back and let’s try not to laugh too loudly as we witness mental illness given a public forum yet again in Sydney’s premier progressive organ:

Ok, you were warned. Here’s one of the oppressed;

Lucy Bloom says everyday household expenses such as rent, utilities, insurance and buying food or furniture can be twice as expensive if you’re single.

You may find this to believe but Marilyn, sorry, Lucy is single. Hardly credible, is it?

Now that you’ve got over that shock, here’s some barely believable maths for you to come to terms with;

A one-person household can spend $2835 per month on living costs – 27 per cent more than couples, who spend a combined $4118 per month.
Lucy Bloom can attest to the fact the singles tax is alive and well in Sydney, too.

If, like me, you’re struggling with the underlying equation resulting a statement that $2,835 is 27% greater than $4,118, consider inserting the words “per person” somewhere in the sentence. Sub-editing going well?

Lucy is a financial giant amongst us pygmies, however;

“So many things cost the same whether you’re a single or a couple, so it’s effectively twice the price to be on your own,” the management consultant says.

She’s a “management consultant”? Let that one sink in for a moment. 

It gets better;

“If I had a live-in partner, the only cost that would change would be food, but there would be two incomes to play with,” she says.

And if my mother had wheels, she’d be a trolley.

Actually, Lucy, if you had a live-in partner with another income, you’d have two incomes to play with.

But regardless of language semantics, she’s doing it tough. She barely knows where next month’s hair dye is coming from; 

“The only way I make it work is by renting out my spare rooms on Airbnb, which covers my mortgage.”

“Living by one of the best beaches in Sydney certainly helps my occupancy rate,” she says.

“On the upside, I have my personal freedom and an asset that has increased in value by $600,000 since 2017,” Ms Bloom says.

Right. Not exactly walking 20km barefoot to the well to collect drinking water each day, are we?

That last sentence in the quote is almost “Peak Sydney”; I’m sad and lonely and need to seek attention by dying my hair bright pink and whining about my life in a national newspaper but at least I’m an economic genius when it comes to investing in property. 

Let’s hope nobody bursts her bubble by showing her the CoreLogic indices relating to apartments in the Eastern Suburbs any time soon.

The best is saved for last though. Apparently, the oppressed singletons have one significant expense the privileged couples don’t;

One in four Australians spend $100 or more on pre-date preparation, including new clothes, shoes, hair and makeup and a further $79 on the first date.

They didn’t mention the additional costs associated with veterinary bills for cats, strangely.

Bill’s Opinion

This seems to align closely with Sailer’s First Law of Female Journalism;

The most heartfelt articles by female journalists tend to be demands that social values be overturned in order that, Come the Revolution, the journalist herself will be considered hotter-looking.

Soggy bottoms

If it feels like this month’s update to the “Are we there yet, Mum” Index has come around early, it’s because last month’s was late. Sue me.

Since the Federal election and yesterday’s decision by the RBA to cave in to the noise prudently lower interest rates to yet an even lower historical low, the Legacy Press (c) and social media has been awash with vested interests talking up their own book.

Notable characters included in this description are Doctor Andrew Wilson (he’s a doctor of property!), the usually mildly sober Pete Wargent and practically every estate agent left solvent and trading. Apart from offering tangible data about “da feelz“, sorry, “market sentiment“, an increase in the auction clearance rate (i.e. the ratio of properties sold against those put up for auction) is presented as evidence for this ding dinging of the bell calling the bottom.

Now, it may well be that the nadir of the Sydney market has been and gone. That data point is, thankfully, a relatively objective measure. We can probably confirm this in about 2 month’s time when this month’s sales information has washed through the databases.

Our updated index (presented below), isn’t suggesting the trend has reversed, however. The relative change in the RBA lending data is still bouncing along at the lowest it’s ever been (before 2017, one could count the months it had been at 0.3% or below on the fingers of one hand) and the CoreLogic price index is still showing “negative growth”, i.e. prices are still falling.

It could be credibly argued that the CoreLogic data is a lag measure, so Wilson, Wargent, et al, could be correct in their bottom-calling, but the RBA data is almost certainly a lead indicator. Awkward…

Bill’s Opinion

The index suggests we’re still about 2 to 3 months from a possible bottom in the Sydney property market, and that’s likely to be the continuing situation until we’ve seen a quarter of a year’s worth of lending figures above 0.3% increases.

For those who pay attention, I’ve switched the trend line from linear to moving average as it seems more useful now we’ve reached a (low) plateau.

Ring the bells that still can ring

….forget your perfect offering,

There is a crack, a crack in everything,

That’s how the light gets in.

To borrow an over-used adjective from the good Doctor Wilson (he’s a doctor of property! No, really!), predictably, the various completely unbiased non-vested interests have called the bottom of the Sydney housing price crash.

Everywhere one looks there are gushing articles about the green shoots of recovery in the clearance (successfully sold) rate at auctions, or the simply wonderful news that the Reserve Bank of Australia, RBA, is so bullish about the economy that they may consider lowering interest rates from the current historical lows and now the sniff of a suggestion of a hint that the Australian Prudential Regulation Authority, APRA, may ease the current safety checks on lenders that ensure loans can still be repaid if rates were to rise to above 7%.

In the words of Winston Wolfe, “let’s not go sucking each other’s dicks just yet, boys“. Let’s have a sober look at the facts, shall we?

Auctions – sure, the published rate is creeping above 50% but look at the volumes; half of the previous year. Also, the auction clearance data is about the most easily-manipulated and therefore least believable of all housing data points in Australia.

 The RBA – haven’t actually lowered rates yet and anyway, if they did lower the cost of borrowing, does that signify confidence in the economic trend or perhaps the opposite? Also, how much of these banks’ mortgage funding is procured at domestic rates versus the (rising) international rate? Anyone? Bueller?

APRA – haven’t changed their policy yet. They simply are considering it.

Bill’s Opinion

Sentiment is difficult to measure. In fact, given that most of the data points for sentiment are likely to be heavily skewed by the vested interests of those reporting them, I’d suggest completely avoiding any newspaper or similar media commentary.

In this internet age, we can become our own data analysts with very little effort. Transactions such as lending volumes (a lead indicator) and house prices relative to previous levels (a lag indicator) are published frequently and have methodologies we can apply a reasonable level of trust to.

These two metrics are about as solid and tangible as we need to determine when that mythical beast, the market top or bottom has arrived.

What, therefore, is our updated “Are we there yet, Mum” index telling us this month?

Hmmm.

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.

Update;

This just popped up on my Creepbook for Business timeline, just to prove my point;

Thanks Elvis, is that financial advice you’re offering?

The secret to becoming a millionaire in Australia

….is to invest three million dollars into a business built by a real estate “entrepreneur”.

Exhibit 1 McGrath Estate Agents

John “Million Dollar Agent” McGrath has presided over one of the most classic examples of wealth destruction of our time. I think the people we should feel most sorry for are those who bought into the bull traps in 2016 and 2017. It must have been like that exhilarating feeling a surfer gets as they catch a large wave but then realise they’ve got the angle wrong and are shooting to the bottom rather than gracefully gliding across the face of the wave.

Exhibit 2 – Yellow Brick Road

It would seem others have been paying attention to Mr. Bouris too:

ASX suspension? What ASX suspension?! Yellow Brick Road’s Mark Bouris has spent the week since the business failed to lodge first-half accounts doing what he does best. That is, self-promotion.

Ah, self-promotion. That’s a common factor, isn’t it?

Those who’ve spent some time in the UK might recognise the type:

Bill’s Opinion

Australia entered a per capita recession this week. Property prices have been on the slide since September 2017.

The two examples above are both completely reliant on the health of the real estate market to return a profit. Which direction do we feel these share charts are going in the near to mid-term? At the time of writing, Yellow Brick Road shares are on their 4th business day of suspension.

In the words of Bob Dylan, “just when you think you’ve lost everything, you find out you can always lose a little more“.

Introducing the “Are we there yet, Mum?” Index

In case you haven’t realised it already, the organisations that most loudly proclaim their “Independent. Always” credentials are, in fact, some of the worst peddlers of fake news. At best, there is a distinct lack of critical thinking when it comes to reporting what clearly vested interests are pitching. No-one is really looking for the dog that isn’t barking……

Worse, there are people out there heavily-invested in certain outcomes yet being interviewed and given publicity as if they were a credible information source; Stephen Koukalous, for example, long property much?

The epitome of this Lord Haw Haw mentality is the Doctor of Property himself, Andrew Wilson, a man with so little credibility, Fairfax fired him.

Two recent outputs from this mendacious fool have prompted the creation of the “Are we there yet, Mum?” index;

Firstly, this one where he claims prices have bottomed because the median price at auction didn’t fall significantly since the previous week. Just re-read that again slowly…… (by the way, I’m pretty sure he edited this from an earlier version that even claimed prices were on the rise – if anyone can confirm my suspicions, I’d be grateful).

And this one where he claims a high auction clearance rate despite the glaring problem that only 55% of results were reported;

Therefore, readers who are interested or mildly bemused by the current “completely unpredictable” housing bust occurring in Australia may enjoy this new monthly feature.

William of Ockham’s “Are we there yet, Mum?” index.

This is a collection of public data, which is intended to illustrate the bottom of the Sydney housing market, when it arrives.

The datasets used are as follows;

Housing credit source: RBA
Monthly indices source: Core Logic
Auction data source: Core Logic

The last one was created by looking back on the Core Logic website for the final print of weekly auction data. I stopped at August last year but will continue collecting it while on a dull conference call. Of course, if anyone has access to an Excel version of the back series, please do let me know and I”ll drop that into the chart.

These charts will be updated monthly, probably just after the RBA credit change data is published.

Any debate or discussion on dataset chosen, interpretations or additions/modifications are welcome in the comments section.

(note: there are 4 to 5 weeks in December and January where auctions volumes are too low for Core Logic to bother reporting).