From the AFR:
Rob Mead, head of PIMCO’s Asia-Pacific credit portfolio…told The Australian Financial Review local house prices were among the most expensive in the developed world and people should not expect a repeat of last year’s surge in values. The price growth would be restrained by rising unemployment and new homes being built.
…Mr Mead’s colleague Ed Devlin said Canadian house prices would probably fall 10 per cent to 30 per cent over the next two to five years. He is less concerned about the Australian market but is cautious.
“The caution around that is the most leveraged part of the economy is being asked to do the heavy lifting to replace the mining sector…It’s tentative because a lot of it is growing through housing investments rather than a broader rebalancing where the non-mining corporate sector is aggressively investing.”
Hmmm, we’ve done it before in 2003 and 2011. The question I have about it, however, is on both of those previous occasions we had big income gains in the economy being driven by the terms of trade boom and then the investment boom, respectively.
The only boom we’ll have in the next few years is export volumes which contain no income gains, indeed they’ll mask income falls.
Consumers are struggling off their butts now as house prices rise, how are they gong to react if price plateau? There can be no broadening of the recovery if house prices stop rising and consumers get more cautious. And if there’s no broadening of the recovery then the capex cliff will expose the labour market…
There’s a lot of hope resting on the shoulders of irrational housing investment.
