Pascometer burns red on housing crash

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Weeoo, weeoo, weeoo. It appears the Great Australian Housing Crash is indeed upon us:

Step right up Capital Economics with a forecast that Australian housing prices will fall by 10 per cent – more web friendly than a supermodel’s wardrobe malfunction.

This research house with research to sell joins a long list of headline grabbers with the “housing to dive” line. On a scale of predicted pain, 10 per cent isn’t nearly as much as some and it’s supposed to come after a couple of years of flat prices.

Flat housing prices wouldn’t be a bad thing for a market that has indeed been running hot and a correction of 10 per cent is not out of the question for the parts of the market that have run particularly hot.

…But there’s a problem with the reported Capital Economics reasoning: it assumes the Reserve Bank is particularly stupid, the Australian Prudential Regulation Authority (APRA) is asleep at the wheel, the banks have learned nothing from being rapped over the knuckles over home loans and that there is a different set of household debt figures around to the ones the RBA publishes.

Capital Economics’ Paul Dales thinks the trigger for housing prices falling will be the RBA putting up interest rates “although that trigger won’t be pulled until 2018 at the earliest”. He believes that, because of the high level of household debt, interest payments are taking up a large proportion of household income even though interest rates are at record lows.

…Never mind. “Housing crash” still makes a great headline.

Lordy! And I thought Capital Economics was one of the the most serious and reputable of global forecasting houses. Turns out they’re just DOOMSAYING gold diggers!

I’ve been concerned for some time that MB had broken the contrarian signal generator that we call the Pascometer, given his conspicuous silence on all things of investment importance, but it’s back and it’s functional.

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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.