The three early movers in Australia’s economic debate, Paul Bloxham, Stephen Koukoulas and Chris Joye are back in the saddle.
Bloxo is out again today reiterating his call that the bottom of the interest rate cycle is in:
We remain optimistic that Australia will see a smooth rebalancing of growth, from being led by the mining sector, as it was in 2012, to being supported by growth in the interest-rate sensitive sectors such as housing and retail sales (we set out this case in Australia’s great rebalancing act: Looking beyond the mining investment boom, 7 December 2012). Current policy settings seem appropriate to support that rebalancing, in our view.
A key factor supporting this view is that the mining story is not over yet. There is still further support for GDP growth from rising mining investment in H1 2013, as there is still significant work yet to be done on projects that are being built, particularly the large LNG projects.
This means there is time for the other sectors of the economy to take over as the key drivers of growth. A possible constraint to this smooth rebalancing of growth may be the high level of the AUD. However, much like its effect on inflation, our central view is that the drag on growth from the AUD will also wear off. Firms and households are adjusting to the new higher level of the AUD, with the biggest drag on growth is now likely to be behind us.
Yes, finally, there have been some early signs of promise with new home sales off their lows yesterday. Here is the chart that matters, data on new house sales (which is what matters given houses is where all the employment is):
Retail sales have also formed a little uptrend as rate cuts have deepened:
But beyond last year’s carbon tax rebate spike, retail sales are stuck well below 4% growth. In my view, sales growth will not accelerate unless house prices do.
The Kouk goes all in on just that:
The bottom line was that the current favourable level of affordability would spur a rise in house prices by something around 10 per cent this year…The data for new home sales is pointing to a powerfully strong upswing. The Housing Industry Association’s new home sales rose 6.2 per cent in December after rising 3 per cent in November and 3.6 per cent in October. That is a thumping 13 per cent lift in sales in the final three months of 2012, an impressive lift after home sales were in the doldrums around the middle of last year…The housing sector is set for a strong performance in 2013. There are likely to be strong rising house prices, higher home sales and a lift in construction. Low interest rates, high immigration and improved affordability are the trifecta of positive news that make this close to certain.
Hmmm, do you see “powerful” in the above housing chart? As for 10% price appreciation, that would blast house prices to new record highs. Here is the RP Data chart:
It looks like a slow bottoming process to me and let’s not forget that the recent move is seasonally affected. Moreover, credit data has not yet accelerated enough to corroborate a strong house price shift.
Even Chris Joye is struggling to sound excited:
So it’s official. According to RP Data’s “hedonic” daily house price index data released on Friday morning, Australian home values appreciated sharply over the month of January with total capital gains of 1.2 per cent.
National dwelling values have also punched out capital growth over the last quarter (1.0 per cent) and 12 months (1.8 per cent). Indeed only one city, Melbourne, failed to deliver higher house prices over the last year.
If one includes gross rental yields, the total returns earned by Australian property investors before transaction costs have been 6.3 per cent over the 12 months to the end of January.
Ex-costs, Enron was immensely profitable too.
So, am I impressed? I’m excited that we’re seeing some response to the RBA at last. But at this juncture it is nowhere near enough to make me think that either there is a sustained recovery underway in house prices, construction, retail or any interest rate sensitive sector. With a patchy global recovery in the offing, a mid-year peak in mining investment and second half iron ore price slide in the offing, I’m not calling the bottom for anything yet.
130201 RBA Observer – On hold next week – easing phase may be done.pdf
“Ex-costs, Enron was immensely profitable too”
Yes as soon as you see that erm…argument…about gross yields being x you just have to know you are hearing a tale!
OK
thanks for the edit. I’ll return to being civilised!
Sorry to be boring but really when is someone going to consider this stuiff……
Kouk
“Australia will see a smooth rebalancing of growth, from being led by the mining sector, as it was in 2012, to being supported by growth in the interest-rate sensitive sectors such as housing and retail sales (we set out this case in Australia’s great rebalancing act:”
Rebalancing??????? JhC!!!! In a nation deeply in foreign debt, most of its productive assets already sold to foreign entities, running a chronic CAD…rebalancing is to increase the CAD, the Debt and sell off whatever little remains of our productive assets?
Please can someone who has direct access to this bloke ask him HTF that is rebalancing the economy???????
What happened to civility?
Yeah sorry! I only saw your edit when I hit the send button on the later post…I’ll reform for a while at least!
But please…if you know the bloke…pose the question.
I did not edit because it was quite deserved.
For sure I was moderated the other day for far less.
I suspects he posts here Flawse.
*waves at The Kouk*
But who is he?
My guess is PF.
Patrician sorry but that just shows how little you know Peter!
They maybe from from different sides of the political fence, flawse but they’re singing from the same song sheet.
Endless growth and consumption fuelled by debt.
Patrician
However I find him very rational (other than for the Magic Pudding stuff)about what is and i believe him to be a decent fellow.
I think you misinterpret PF. He just gives his opinion on how things are not on how they ought to be.
If he says RE seems to be heading up that’s because. from where he sits, it is and given the economic, political and social settings it is likely to continue. That’s different to saying that’s how it ought to be.
I’m obviously not in league with PF – for a start he believes in Bill Barnacle’s tripe!!
Further I totally abhor the whole RE thing and have for forty years. Yet I came to the conclusion about a year ago that RE would be the smart thing to do. That’s just reality no matter how much I hate it.
(I still haven’t bought any for a variety of reasons including not wanting that much debt!)
Whether PF is “decent” and altruistic or just trying to flog more mortgages, only he truly knows but I can safely say that with the magic pudding at the centre of his economic master plan, “very rational” is one description I would not use.
Flawse, I know what you mean about property.
It is hard to see how the current mess will be resolved without some ham-fisted attempt to inflate. It simply asking too much of our buffoon brigade to act responsibly and with resolve.
In those circumstances when everything is going someplace in a handbasket the idea of tangible assets has some appeal. I think this is what Gross from Pimco was alluding to.
That may even extend to the contents of our insanely inflated local property market.
For the time being I am keeping my options liquid as I have little faith in any of the financial asset markets and I don’t trust my ability to ‘trade’ the volatility.
The Kouk is a champ.
While many wear out their worry beads about the level of household debt and whether it will resume an upward march, he sees nothing but blue sky.
Household debt “What, me worry?”
But then the RBA’s very own Luci ‘ no indicators/measures required’ Ellis is also remarkably evasive on that very topic beyond assuring us if she sees a playtpus she will do something about it.
People assume that the RBA are no longer keen on household debt climbing higher because Governor Stevens makes veiled comments during after dinner speeches.
Actions speak louder than words and we will have to see what the RBA does if the Kouk is on the money and households dig deep and accept the temptation of cheap’n'easy credit over the next 6 months and buy the house of their dreams.
That would be very interesting indeed. My view that they need to let it run to get new homes going but that’s the extent of their patience.
On the other side of things, last week’s RBA outburst was clearly an indication that they do not want to go lower.
I guess I’m still thinking they’ll be forced into it late in the year.
I guess in this election year we can expect Kouk to be very upbeat on the economy – more so than usual.
Where is Irvine these days?
Or will he return to the Kouk of last year, scream for more rate cuts, then tell everyone its Labor’s phenomenal economic management that’s driving affordable outcomes for working families? He does have 8 months.
Oh, but he can do both, Jimbo.
That is the wonder of the “BullDove” Kouk.
He can call the economy as going gangbusters and be screaming for rate cuts at the same time. It is a truly phenomenal talent.
Yes, Luci Ellis who said in 2006 –
“The most important lesson to draw from recent international experience is that a run-up in housing prices and debt need not be dangerous for the macroeconomy, was probably inevitable, and might even be desirable. As emphasised by the BIS Committee on the Global Financial System’s Working Group report, the expansion in household borrowing has in many cases reflected better pricing of risk and credit scoring, implying that credit is being allocated more efficiently than in the past. This should improve the economy’s resilience to adverse shocks.”
http://www.rba.gov.au/publications/rdp/2006/pdf/rdp2006-12.pdf
Australia is different, we have
kangaroosplatypus as the central banker and the bull hawks as (bank) economistsA rebalancing of our growth model from mining investment to household consumption? God he’s insufferable.
MJV At some convenient moment I’d like to revisit that discussion about money printing to buy foreign assets….no doubt a suitable thread will come up shortly.
All the best
Even if you buy the projection these guys are making on relatively modest evidence, what happens if they are actually right??
If home prices do indeed go up 10%, then a) affordability is now gone b) RBA will raise rates again.
So what happens after that? I guess we repeat the whole process again.
Eventually though, we must just run out of gas with this. I guess thats where household debt levels, which they conveniently leave out of their modelling, come in.
I’ve come to the conclusion that unemployment is the only number that matters.
Employed people are more optimistic and likely to invest, even if they are collecting coupons for cheap food so they can keep their properties.
But when the unemployment figures go up, confidence drops through the floor.
Bloxo, the Kouk and Joye are wealthy and employed. Excessive optimism is a given for them.
Those three need to consider their real world production.
Unbridled optimism might be unwarranted at a personal level for them.
Retail sales growing at 4%.
Isn’t this about where they should be?
2% inflation, 1% population growth, 1% real growth per capita.
What’s unreasonable with that?
Nothing. It’s the new normal. But most people are living in the pre-GFC past, so it’s a shock for them.
Retail sales growing at 4%
The problem with the 4% number is that it is too high.
The most important assumption that you must make for 4$ to be the Goldilocks nymber is that the CAD, foreign debt and asset sales don’t matter.
“A possible constraint to this smooth rebalancing of growth may be the high level of the AUD. However,much like its effect on inflation, our central view is that the drag on growth from the AUD will also wear off. Firms and households are adjusting to the new higher level of the AUD, with the biggest drag ongrowth is now likely to be behind us.”
With the biggest drag on growth is now likely to be behind us????
WTF, has Securency been issued a stealth license?
In Roman times geese were used as warning signals. The ganders goosing the markets?
Does anyone remember the Californian rolling brownouts re Enron circa 2002?
Heard some terrifying anectdotal evidence the other day from an old and reliable friend: A younger acquaintence of his in his mid thirties, without his wife working and earning a strong high salary (not over the top) was offered a mortgage facility of $1M. Previous offer in boom times was $600k.
So if we can’t boot it up from the bottom with FHB bribes and Interest Rates then skull F it north with outrageous concentration of poison. Push , pull strategems.
Don’t buy now.
i can top it. friend of mine just had pre approval on a loan of 300k. hes on centrelink benefits! unbelievable. how many boomers are pushing their kids into this hole (using the family home as equity) and how vulnerable are they as prices correct?
no sub prime my arse!