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…..
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.