Bubble denial dances its jig

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The great binary machine of the Australian press today lurches from light to dark with a slew of housing bubble denials that are as prolific as they are amusing. It was kicked off by the Pascometer yesterday (thus confirming the opposite) who, despite repeatedly calling the bottom of the rate cycle incorrectly, has nothing but contempt for those still calling for cuts and then arguing, perversely, that rising prices are the result of a renovation boom:

New development or redevelopment often causes the middle and average price to rise, without seeing resale values increasing much at all.

An infrastructure boom:

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This is what often happens around key infrastructure, such as railway stations. New projects lift the median/mean values, whilst resale prices remain flat at the time of new development/redevelopment. The same can be said about weekly rents. Base property values/rents often rise faster closer to core infrastructure, but the overall residential cycle must be on the improve.

A post-flood boom:

A similar trend can be found in many areas affected by flooding across Australia in recent years. Many of these areas, especially in Queensland, have now been redeveloped. This has seen new properties replace older stock. Median/mean values have often risen as a result. But many owners in these areas, who are trying to resell flood-affected but unimproved homes, cannot get much more for their property than they originally paid for it. They are often getting less than they most likely would have if they sold just prior to flooding.

Of course, renovations are down in the national accounts, infrastructure spending hasn’t budged in years and Brisbane prices haven’t budged from the bottom but why let that stop you? It’s a boom that isn’t affecting the “base” because, well, the Pascometer says so.

At the AFR, peripatetic commentator Jennifer Hewitt joins the denialists with a similar lineup of excuses. It’s retirees:

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After all, those same low interest rates that underpin the housing market make the cash alternative seem ever less attractive. And despite the big run in the sharemarket, many people – especially those nearing retirement – don’t want to rely on only shares. The costly lessons of the global financial crisis are still too recent. Investment in bricks and mortar seems more solid.

It’s prudent banks:

Various official urgings to maintain strict lending standards are reasonable warnings to smaller lenders and credit unions. But it’s not as if the big Australian banks, still responsible for the great bulk of Australian home loans, are about to be reckless on housing. The stability of the domestic mortgage market is their greatest security in a volatile world.

It’s deleveraging:

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The countervailing force to the pick-up in new lending for housing is also the propensity of Australians to use low interest rates to pay off their mortgages more quickly. That means the overall level of household debt to income remains relatively stable against all the warnings by international analysts who don’t comprehend how Australian housing prices can be so high.

Meanwhile, at The Australian, in the quote of the morning, “it’s a bonanza, hardly a bubble”, starring John McGrath, who has very much learned his lesson about trumpeting the boom:

“I’ve been in property for 30 years and guess what?” he says. “People have been talking about property bubbles for 30 years.”

At various points in the past thirty years I’ve run across folks that believe in demons, in UFOs, in Big Foot, and that Elvis shot JFK but I’m not sure why any if that is relevant right now.

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At various points in the article it is not a bubble owing to Chinese investors, low interest rates, housing shortages, APRA and RBA vigilance, the Commonwealth Bank, non-banks and credit unions, household debt-to-income ratios and Saul Eslake.

Whatever it takes to hide the simple truth that Australian property remains vastly overvalued, that nothing in our economy justifies any upwards revaluation of property prices at this point (precisely the opposite in fact), and that the Sydney blowoff is out of control and risks an implosion for the broader economy if not stopped sooner rather than later.

Meanwhile, rate cuts are off, the dollar has stopped falling and our competitiveness and productivity are going through another round of property-related erosion.

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Just another day in the increasingly ludicrous politico-housing complex.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.