Pass the popcorn

There’s one element of the current weakness in the housing market that I’m really enjoying. Indeed, it’s turning into riveting theatre.

A week ago today, a brawl broke out between the various housing data providers: SQM Research, Residex and R.P.Data/Rismark. As I reported then, R.P.Data/Rismark (represented in the person of Chris Joye) had set themselves on a bizarre course of  marginalising their own excellent data as they made the case that house prices are not falling, yet maintaining that they are bearish on the market. To achieve this contortion, they both ignored and celebrated their own seasonally adjusted housing data on consecutive days at different media outlets.

Even as R.P.Data ignored its own seasonally adjusted data to make the case that prices weren’t falling, Residex, in the person of John Edwards, attacked R.P.Data for being overly bearish.

Meanwhile, SQM, in the person of Louis Christopher, made a more consistent case for why prices are indeed falling. He was rewarded with the grandaddy of populist gigs, a spot on Sunrise with Kochie, and a piece in the Fairfax press staking out the case for why prices are falling, as well as pointing out the obvious, that the other providers seemed incapable of uttering the “f-word”.

Since then we’ve had further developments. Last Friday, Chris Joye wrote at his blog that:

Oh boy do we see a lot of complete crap sprouted about Australian house prices from folks who really do not know what they are talking about. Here is a chart comparing the capital city and rest of state (ie, all regions but the capital cities) dwelling price indices since the end of 2006 (click to enlarge). That is, it covers all of Australia. Observe how the market has been flat-lining in both sectors since about May last year, as we correctly forecast (we projected 4-5% growth in 2010 at the beginning of the year and got about 4.7% from memory).

As blind-freddy can see, most of the downward shift that occurred recently was a January–and presumably flood-related–effect. For the time being, dwelling prices don’t look like they are going anywhere quick. They are certainly not “falling fast”. Soft, they are, to be sure. Again, we have forecast this outcome since the middle of last year. And, as we have argued for 12 months now, the risk is to the downside if the RBA hawks up with interest rates 2-3 times this year.

Anyone who claims that this position is “bullish” on housing in the near-term is an intellectual invalid. At the same time, anyone who claims that a 1% year-on-year retracement in dwelling values is a major asset-class event (cf. the share market frequently falling more than 5% on a given day) needs their head examined, with the greatest of respect. And I sincerely meant that latter caveat: you genuinely should seek medical advice if you are convinced that house prices are plummeting.

I’m not sure that simply repeating your reasoning, only this time peppered with abuse, improves your argument. But who am I to judge?

Anyway, Louis Christopher responded today with another salvo from the good ship Kochie, this time in the Herald Sun:

The lies being told about the property market drive us crazy. So it’s time for the truth, the whole truth and nothing but the truth.

Residential property values are falling right across the country and those falls will pick up as the year goes on.

It is frustrating to see all the “For Sale” signs, hear anecdotes of friends and relatives having to slash prices to get a buyer but then read real estate agent or media reports cherry-picking the increasingly rare “good news” sales. It gives a very false perspective of reality.

Louis Christopher’s independent property analysis group SQM Research has data on how much residential property values have fallen from their peaks across all capital cities so far this year and how much further those declines are set to go for the rest of this year.

We asked them to identify areas which are turning into property nightmares.

Remember these values and predictions are only for the 2011 calendar year. There is every likelihood the downturn will extend at least into next year as well because the falls are picking up momentum in the second half of this calendar year.

The facts are there are 70 per cent more properties on the market today than this time last year and auction clearance rates have plunged.

A share market correction is a pullback of 10 per cent from peak levels. Anything over 20 per cent is a crash.

We’re heading for a correction across the board and a crash in selected regions. How much pain will depend on several unknown factors.

If the Reserve Bank of Australia raises official interest rates again, it will add to the pace of the decline.

While most economists seem to change their minds daily on future rate rises depending on the latest morsel of data, the RBA is smart enough to know the weakness in housing and other sectors of the economy.

The ongoing health of the economy will play a big part. Residential property prices are unlikely to drop the 30-40 per cent that occurred in large parts of the US and Europe because of the comparative strength of our economy.

If economic growth reaches the 4 per cent forecast in the federal Budget, and unemployment stays at the 4-5 per cent level, then most existing and prospective homeowners should be in reasonable shape.But if interest rates rise more than expected, or the economy cracks, all bets are off and the property slide could get ugly.

Even now, those first-home buyers who took advantage of the boost to the First Home Owners Scheme a couple of years ago need to make sure they’ve built up equity in their house and cut debt to ensure their loan isn’t worth more than the value of their property.

In Sydney, population growth and a stock shortage will provide a reasonably soft landing for property prices in general. But the prestigious end of the market ($2 million-plus) is being absolutely smashed and there will be no let-up.

In Melbourne, there are twice as many properties for sale as this time last year, which is weighing down prices. Trendy inner-ring suburbs gave great growth over recent years but that bubble is bursting and it is now the worst-affected region in the downturn.

Brisbane could turn into a property nightmare, with declines accentuated by the crash in nearby Gold and Sunshine coasts where there is a massive oversupply of stock. In both regions there is four to five years worth of stock on the market as apartment blocks sold off the plan have failed to settle. Tweed Heads is also suffering. It will be years before there is any sort of recovery.

In Perth, despite the commodities boom, high wages and a booming property market in recent years, there is now a serious oversupply of stock.

Adelaide is generally a pretty stable property market without the big peaks and troughs of the eastern capitals. As such, its downturn will be pretty muted by comparison except in the Port Adelaide area, which will suffer in the aftermath of recent strong development.

Darwin has been going through a strong boom and has been set for the inevitable which is now occurring.

Canberra’s property depends on the health of the public service. Under Labor it looks fine but if the Government changes, and the Coalition delivers its big public service cuts, things can change rapidly.

Hobart is another solid property market but Launceston is suffering from a sizeable property hangover.

It’s not hard to see who is winning the battle for hearts and minds. As R.P.Data/Rismark seems to turn in on itself, SQM is making hay in the major media outlets of the day.

Obviously, I am more of the view that SQM is right. Time will tell on that question. The irony is that I’m relying on the conceptually excellent R.P.Data/Rismark Hedonic Index to draw my conclusion. I sincerely wonder why they don’t do the same.

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Comments

  1. I wish either of them would get the employment/ housing value relationship correct though. Maybe that’ll be the next domino to fall in the MSM over the next few months.

  2. What! No Gravy!

    And I keep wondering why Joye was proposing to bet Jeremy Grantham is he was anticipating a rise in house prices at the time he was seeking to make that bet.

    • What! No Gravy!

      Let me try that again 🙂

      I keep wondering why Joye was proposing to bet Jeremy Grantham if he wasn’t anticipating a rise in house prices at the time he was seeking to make that bet.

    • From memory, Joye wasn’t even really willing to bet his own money – he was saying he’d lined up people who were willing to bet against Grantham. Pretty pissweak stuff, Joye was insisting Grantham put his money where his mouth was but wouldn’t do it himself – like trying to get into a fight and then getting your bigger friend to step in.

  3. “As I reported then, R.P.Data/Rismark (represented in the person of Chris Joye) had set themselves on a bizarre course of marginalising their own excellent data as they made the case that house prices are not falling,”
    Do you have a link to Joye saying house prices are not falling? I’ve seen where he says “They are certainly not “falling fast”” supported by his charts showing prices falling a little.

    • In the business spectator article he states

      “Actual house prices are not down 2 per cent. On the contrary, they are flat.”

      Anything else I can do for you?

      For someone who claimed earlier in the week that they are not involved in the industry and are also not an investor you seem pretty quick at running to the defence certain people! Want to come clean yet?

  4. I completely agree. After reading Christopher Joye’s attempt to redeem himself, I got the impression that his need to personally insult and take jabs rather than present facts only proved all the more that SQM Research are right on money, concerning house prices.

  5. CJ has a new post where he’s singing the praises of Rismark’s models…

    Our models, which a team of four PhDs have been working on for several years, have been very accurate, which has in turn informed our public pronouncements

    CJ has been pretty consistent in his forecast of little to no growth (or small nominal declines) for many months now. What he hasn’t been forecasting is big declines of 10% or more, so if SQM’s forecasts play out, Chris is going to have some serious egg on his face.

    Curiously, despite his view that the housing market is sluggish, Chris has been calling for several rate rises by Christmas.
    Clearly, Joye has unshakable faith in the strength of the Australian housing market and the skills of his multi-PhD forecasting team.

    • Wall St, IMF and OECD are riddled with PhD Mathematicians etc and very few of them saw the GFC coming and even worse, how to deal with the fall out.

      • That’s because those people are equally skilled at using their skills to produce outcomes which are more convenient for their clients.

        Just look at all the financial scandals which played out under the watchful eyes of accountants even though they are usually covered in ‘independence securing’ red tape…

      • There was a study of PhDs and financial experts and their lack of foresight in predicting the financial crisis. Conclusion was most of these people are very bright, yes. Have been very bright all their academic life, from kindergarten to PhD. Become convinced of their own infallibility, unable to see flaws in their own analysis nor detect errors. They are not accustomed to be wrong. In addition, they are often the sort of personalities that strive to please, in earlier life their parents and teachers academically, later life employers, professionally.

        “In some disciplines, “expert” is the closest thing to a fraud performing no better than a computer using a simple algorithm.”
        Nassim Nicholas Taleb

          • The_Mainlander

            +1

            Hit by a House or a bus?

            Kind of like you will die anyway so smoke or buy houses… the houses will go pop and yes you get lung cancer from smoking!

            😉

            Although I am pretty sure Cognitive Dissonance was disproved still a great reference!

            😉

        • Most people get lost in details, most of the time.

          And the important things are rarely in the details, per se…they are in the Axioms (http://en.wikipedia.org/wiki/Axiom)

          And Axioms are why are brilliant methodology can still yield a false conclusion – a conclusion is not better than its starting points (Axioms).

          hence, simple people have as much chance of being correct as “smart” people, in most things most of time. lol @ cleverness!

        • What do you expect from a from a self contradictory, switcharoo,manipulating smart arse, who thinks he is far more clever and able than his contemporaries.

          Question:Who am I describing? Joye or J.M. Keynes?

          Answer: both!

      • The problem is that those PhD’s rely on sophisticated models, which in turn rely on historical data. In the historical record where data is ‘clean’ enough to model, you dont have significant property corrections and you certainly dont have sufficient data to model tail events (ie what is a 1 in 100 year event if you only have 20 years of clean data?).

        So the models will tell you that a significant downturn isnt going to happen, that prices will stay flat for a while (or slightly decrease) before once again increasing. Its almost an inevitability given the recent past.

        Same thing as the models LTCM employed, and same as the VaR models that were relied upon going into the GFC (and are still relied upon). The PhD’s and models are fine until you get to the tails, where they completely and utterly fail.

        The tails are not predictable using these models, and if you wish to discuss tails you need to be looking at qualitative variables overlaid onto your models. If CJ is just relying on model output he is then missing a big part of the picture.

    • CharlieChaplin

      CJ will likely project blame for the failure of his prediction, by stating some unforeseen factor…he may even blame bears for talking down the market in an ill informed manner. Sigghhhhhhh!!!!!

      • Charlie Chaplin…that is exactly what will happen. The Bulls will blame the property buyers strike, Steve Keen and the media for fuelling feers of a housing bubble…

        Its insanity.

        I recieved an article from a mate who is in the property industry and they said that they are finally getting some good news stories (this was back in mid-2010)…

        So they honestly think the media is anti-property? Dont they realise spin and propertyganda when they read it!

    • who gives a sh*t how many PHD’s are working on his model? Gotta love poeple who think PHD’s (who by definition spend more time in the library than the real world) lend credibility to economic models that are trying to describe human behaviour!

  6. “Remember these values and predictions are only for the 2011 calendar year.”
    They are not.
    Louis has now pointed out that Kochie’s article in the Herald Sun, used by DE above, is simply wrong.
    “2011 so far” are actually “% falls from the peak”. And “full year forecast” includes 2010/11 falls to date. They are not 2011 falls as stated by Kochie.

    • Wow that makes all the difference! Thank god you were here to clean that up for us. Not sure why you care given you are a non investing, non industry connected person

  7. Not sure of Joyes point… I seem to remember Long Term Capital Management (LTCM) had a few Nobel prize winners as well as PhD’s & they made and lost a fortune as well as seriously risking a collapse of the finacial system…

    • The problem with many PhD equipped people involved in financial markets, is that they are accustomed to being right much of the time in academic and everyday life, and therefore find it difficult to admit when they are wrong on a trade or opinion. They don’t have a healthy enough respect for risk. The markets will make a fool out of anyone and everyone at least half the time.

      • Spot on, many (, many) years ago I completed a Masters Degree in the Mathematic of Financial Markets, never pursued it for very good reasons, actually stayed right away from it. Very heavy math AC, very heavy. Chaos and Entropy theorist going from describing nature, the heavens, number theory and patterns, went off to stock market graphs. Academics and PhDs thought themselves of the Neo-Aristocracy cause of their esoteric knowledge, they knew how to make money and how it worked. “…see the fractal pattern? That’s how this works…”, murder for some sorts of people should be legal and called something like, sympathic-euthanasia.

        The intellectuals that really cracked me up hard, and they hated me for it, were the Black-Sholes idiots. Oh dear! Didn’t the old George Soros come and give them a flogging and a half. I tried to tell them all the way back then that education is imposed ignorance.

        Hard Knocks is the best Uni (sorry just had to chuck that one in).

        • BotRot, thought you might like this.
          March 6,2009 (Bloomberg) — Myron Scholes, the Nobel prize- winning economist who helped invent a model for pricing options, said regulators need to “blow up or burn” over-the-counter derivative trading markets to help solve the financial crisis.
          http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNRppMJqgURA

          The cockheads don’t even know that they are pawns in someone elses game.

          Educated idiots. Still idiots.

      • The_Mainlander

        Huh and I thought it was that no ‘model’ yet created can re-create the world ‘experience’ one wants to errr model.

        Kind’a like that Financial Model they had with CFD’s except that those that were supposed to pay had no income no jobs and crap financial histories (Got Ninja Loans?)

        I am positive that model only work in theory.

        Until they can model Human behaviour which think Leith posted a while back is anything but logical when it comes to Financial Decisions…

        Think it was Leith?

        😉

        • T_M hope you never cross the breed of market researches that cross Freud, Bernays, Goebbels, Psychiatry, and Neurology. These guys really reckon they’ve figured it all out. Should have seen them scratch their heads with a question mark on top of their head, when companies cut spending and the marketing budget was cut first. They thought they were so needed.

          Making Money = Other People’s * (Irrationality + Emotion)

          There’s a human behaviour model that worked for George Soros.

  8. Good post again DE!! economics sure is an opinion based topic of knowing the answer first then proving how you get there second.

    Love how Joye appears angry in his commentary, he should have used capital letters, might have got his point across better.

    I’m going to get my head examined….

  9. I’m all for falling house prices but we need to ensure the data is accurate. It was revealed today that David Koch actually screwed up the figures to make them appear far more bearish than they really were!

    Louis Christopher discussed Kochie’s mistake on APF today:

    Kochie got forecast wrong – Louis Christopher

    Louis said he will be releasing the correct figures in his newsletter tomorrow.

    Carter.

  10. Flat lining: There goes a real estate guru trying to read a chart!

    Both compare stock market cycles to real estate market cycles as if they were in the same timeframes.

    Stock market cycles are changing, becoming more volatile. The frequency and amplitude of the cycles is increasing due to high levels of liquidity, the increasing number of retail traders, the increased use of leverage, and government policy (like superannuation).

    The real estate market will never be as liquid, because of the nature of the financial vehicle. On top of that, there are way too many barriers to liquidity (stamp duty, for example). However, the other factors: more “traders”, more leverage, and more policy (now including superannuation) are there making the swings more pronounced.

    I said this before in one of Leith’s posts. It took 20 years to get the market to where it was. If it falls 25% in the next 24-36 months, it will be a sharp fall.

    Any equity trader knows that falls sting harder than gains, not just in the emotional sense. The reason is that it takes more than a 10% gain to make back a 10% fall. I wonder how many real estate gurus know this fact…

    It’s nice to see some maturity come to the real estate market in Australia. This site does a lot to get it there. The analysis seen here should be the analysis done by the “gurus”.

    It takes a 30% gain to come back from a 25% drop.

    -gt

  11. SQM will get the forecasts clarified in tomorrow’s SQM newsletter. A little dissapointing this has happened. But I guess thats what happens when the large media outlets keep cutting back on their editorial staff.

    BTW wasn’t there a recent blog around here on past predictions/comments made by Mr Joye?

  12. “The nasty things that you think are coming always take longer to arrive than you think they will, but once they get here, they make up for their tardiness by being worse than you thought they’d be.”
    -Richard Maybury

    Housing is overpriced by many metrics. Without debt build-up much of the rise could not have been achieved. The housing correction will a be a slow drawn out affair…but it will happen.

    Two more rate rises this year and the creak will go crack.

    Let the debate continue

  13. I happen to be PhD qualified and have done a lot of quite heavy maths and modelling. Based on my experience I’m probably the last to have blind faith in any mathematical model that tries to model phenomena involving human behaviour. Most of these models operate under assumptions that make them mathematically tractable and often break down when the underlying assumptions no longer hold. For a while I was involved in modelling communications networks and remember when the Inernet usage started picking up with dial-up about 1997. The old Erlang models for dimensioning telephone exchanges suddenly became completely useless since the call holding times were no longer exponentially distributed and had very heavy tails which was the same reason for the failure of many financial risk models as pointed out by Nicholas Taleb.

    • Indeed.

      All descriptions (models, etc), be they quantitative or qualitative, live and die on the quality and exhaustiveness of their assumptions (read: axioms, boundary conditions, etc, whatever).

  14. Actually Joye has kindly lifted all of their forecasts month after month on his latest blog. I would like to see an analysis of Louis Christopher’s forecasts over the last 4 years. Ugly. Here is Joye:

    October 2009:

    What we said – Christopher Joye: “We are projecting materially lower and more durable rates of house price growth going forward as home loan rates rise towards 7 per cent and beyond over 2010.”

    What happened – House price growth declined from double digit rates in 2009 to just a 5% (ie, single digit) annualized rate in 2010. Home loan rates rose to 7.8%.

    November 2009:

    What we said – Christopher Joye: “Although we forecast a resilient recovery in 2009, we have been surprised on the upside by the strength of conditions, which reflects Australia’s better-than-expected employment and growth outcomes. We project that as mortgage rates normalise capital growth rates will fall back to more subdued levels.”

    What happened – House price growth slowed to a single digit rate in 2010.

    December 2009:

    What we said – Christopher Joye: “[A]s mortgage rates normalise to around 7-8 per cent, house price growth will taper back to more modest single-digit levels in 2010.”

    What happened – House price growth slowed to a single digit rate in 2010.

    January 2010

    What we said – Christopher Joye: “We are projecting that the housing market will cool as mortgage rates normalise back to 7-8% levels. This implies that capital growth rates will fall back to single digit levels consistent with expected change in the incomes of prospective buyers.”

    What happened – House prices grew in line with disposable household incomes in 2010. Home loan rates rose to 7.8%.

    February 2010

    What we said – Christopher Joye: “While the January sales data is typically thin, we have yet to observe a sustained cooling in market conditions, which Rismark expects to see given the recent tapering in seasonally-adjusted housing finance commitments. In the long-run, one would anticipate that house prices should track disposable incomes.”

    What happened – You know.

    May 2010

    What we said – Christopher Joye: “We have been forecasting a cooling in capital growth rates back down to single digit levels since October last year. Australian disposable household incomes rose by 11.5 per cent in 2009—unsurprisingly, the cost of housing increased by almost exactly the same amount. In 2010, disposable household income growth will be less than 5 per cent. Over the long-run, residential property values track purchasing power quite closely. We believe 2010 will be no different in this regard…. As interest rates have normalised, and disposable income growth falls back to 3-5 per cent in calendar year 2010, it is natural to expect the cost of housing to follow suit.”

    What happened – In 2010 house prices grew by 5%, which was broadly in line with year-on-year disposable income growth.

    June 2010

    What we said – Christopher Joye: “With disposable household incomes forecast to increase by only around 5 per cent in 2010, we have long predicted subdued dwelling price performance for this year.

    What happened – See above.

    July 2010

    What we said – Christopher Joye: “We’ve been forecasting a substantial deceleration in housing conditions back to single-digit annualised growth rates since October 2009. Over the long-run, house prices track purchasing power quite closely. Disposable household incomes were only projected to rise by about 5% in 2010. We’ve had 4.7% growth in dwelling values in the year-to-date. We do not expect to see the market rise much more over the remaining year subject to labour market conditions and the course of monetary policy.”

    What happened – House prices flat-lined from June 2010 onwards.

    August 2010

    What we said – Christopher Joye: “In contrast to claims that the decline in home values recorded in June would accelerate, we have seen quite the opposite: Australia’s housing market appears to have gravitated back to a no-to-very low growth trajectory, as we forecast.”

    What happened – House prices flat-lined for the remainder of 2010.

    September 2010

    What we said – Christopher Joye: “We were not forecasting any further capital growth in the second half of 2010. Recent data vindicate this thesis. In the first seven months of 2010, capital city dwelling values have accreted by 4.8 per cent in raw terms, which is in line with consensus expectations for disposable household income growth.”

    “Futures market pricing for interest rates has changed dramatically over the last month, shifting from expectations of rate cuts to at least two hikes by end 2011. But following hawkish RBA remarks, economists are now predicting we’ll get 4-6 cash rate hikes…

    “If the resources boom combined with frisky consumer spending compel the RBA to lift the cash rate 4-6 times by end 2011, we would expect to see nominal dwelling values decline modesty. This is not a bad thing. Asset prices cannot always rise – the volatile sharemarket regularly subjects investors to savage swings. Since 1993 there have been five instances when the RBA has lifted the cash rate sharply. On every single occasion national capital city dwelling prices have flat-lined or declined. If the RBA aggressively raises rates, there is no reason to expect 2010-11 to be any different.”

    “Borrowers applying for loans today should be prepared to service rates that are 1.5 per cent higher than what they are currently paying. They can, however, take succour from the fact that the peak rate is unlikely to endure for too long, and the ‘through-the-cycle’ headline mortgage rate should average between 7-8 per cent (ie, before any discounts).”

    What happened – The RBA raised rates by, de facto, nearly two official hikes (or 40bpts in total) two months later in November. House prices started softening modestly thereafter.

    October 2010

    What we said – Christopher Joye: “2010 has panned out exactly as we expected. A strong start to the year followed by little-to-no capital growth in the second half…

    “There are nevertheless risks in the near-term: home loan rates will eventually start increasing with the prospect that the peak mortgage rate could converge to close to 9 per cent, which is more than 1.5 per cent higher than the current average variable mortgage rate of 7.4 per cent. Our analysis suggests that a substantial increase in rates would put some downward pressure on dwelling prices. Household balance-sheets will be supported by a strong labour market and robust income growth. But let’s be clear: it is now just a matter of time before the RBA and/or the banks raise rates again. New borrowers taking out loans should be prepared to service rates 1.5 per cent higher than what they are currently paying.”

    What happened – The RBA raised rates by, de facto, nearly two official hikes (or 40bpts in total) a month later. House prices started softening modestly thereafter.

    November 2010:

    What we said – Christopher Joye: “We believe that there is a risk of at least three cash rate increases in 2011. In this event, our central case is that there will be little-to-no nominal dwelling price growth over 2011, with a chance of small nominal declines. This is no bad thing, and will only further improve asset-class valuations.”

    What happened – There has been no house price growth in 2011, with prices off by less than 1% in raw terms.

    January 2011:

    What we said – Christopher Joye: “We expect, however, to see the RBA lift rates considerably more than that implied by the futures market in the face of rapidly brewing inflation and wage pressures, and our central case is, therefore, little-to-no capital growth in Australian home values with a resultant improvement in the market’s valuation fundamentals. As rates start declining in 2012, this should unleash some attractive affordability dynamics. When all is said and done, the key question will be whether the RBA waits for burgeoning wage and consumer price inflation to manifest in the official statistics, or whether it tries to pre-emptively staunch these problems.”

    What happened – Inflation surprised on the upside in the first quarter of 2011, and economists now expect the RBA to hike twice more this year

  15. David Collyer

    It is painful to listen to heavily geared property investors scratching around for ‘reasons’ why the property market cannot/willnot/mustnot trend down. First home buyers have been priced out of the market for some time now. With no new money coming in, the edifice must fall. Have you any idea how angry young adults are at being locked our of full citizenship in a property owning democracy?

    Have a look:
    http://www.facebook.com/dontbuynow

  16. Amazing the precience of 15 consecutive 30 day months of forecasting the housing market capital price.

    In the 1990’s annual new housing credit was $20 billion and aggregate housing capital was $1 trillion.

    In 2010 new housing credit was $80 billion and aggregate housing capital was $4 trillion

    Anyone who pays money for predictions of housing capital prices 30 days or 15 months away needs to check themselves into their local therapist.

    House prices long term are 100% linked to annual new credit creation… The annual quantity of which could be zero or infinite!

  17. A rise in price? If the RBA decided to devalue the currency say 30%, would this not even out a potential 25% fall? How about adding an additional zero to the $100 “note”. Higher wages, higher house prices higher hookers lol….

  18. michael francis

    Christopher Joyes attemped bet with Jeremy Grantham that Australian house prices never fall have won him the undeclared prize of ‘The Biggest Dickhead’, considering what is now happening.

    No wonder he pulled out of next weeks property price debate against Steve Keen.

  19. Reading these responses is very interesting.
    I see a lot of economist trying to explain few things to plain people:
    a) houses are doomed and goes down or
    b) change is insignificant and prices will stay the same more or less.
    As engineer I am very practical in my views therefore I would point few things.
    1) I am very keen in buying house (3bdr+), but not under such exorbitant terms
    2) I live in city of Perth at the moment and I have followed market here for many years now (I recently came to Australia but I am watching market for maybe past 5 years) Prices went up here much faster than your graphs show and they fell down much deeper in 2008/2009 than your graphs show in FHOB interest zone and that is 300-450k in today money, but anyway since June 2009 thanks to FHOB grand prices jumped, nope they skyrocketed. In November 2010 you could not find house outside Kwinana industrial zone for less than 480k (actually there were 4 on the market in dodgy area of city).
    3)At this point if you type 300k as your price limit you will find about 400 houses for sale, and some of them are quite nice to tell the truth.

    Because of such things people became wary on house prices and are keen to sell, and those people are not the ones that bought house in past 2 years, no, FHOB will wait for banks to evict them because of fact that they can not cope with 30-80k loss they have on their house and they still frantically playing their bet on poker table hoping that tide will turn.
    4) Driving trough city I see a lot of new for sale signs, not only in my neighborhood (investor paradise close to beach) but in all other areas. Number of listings are increasing every day and most of them have heavy smell of investment properties.
    4) Baby boomers are retiring. And that is adding pressure on market I know at least 5 people that will retire in next 3 years and they all plan to sell (will see if they will be keen if prices crash) and they are very worried how the things are going.
    5) I know at least 20 people that are still not in housing market and are not keen to buy on this prices though they have significant income (around 100k+ per year)
    6) Of some of 10 people I know that bought houses in past 5 years 2 sold houses and are now renting, 3 are planing to offload property due to falling prices, but cant get money they want and rest have 40-60% of debt and are not claiming any more that prices go up and if I don’t buy I will “miss” something. They are ready to brace for impact and have new mantra “Ok prices will fall but I am not so heavily leveraged and I like place where I live”

    Now when my brain computes data above I get this responses.

    1) People that own houses don’t like idea that they will lose money. Well look at this; you haven’t lost any money, you lost virtual value that you might got if you sold house on peak. But that is probably not comforting enough for you guys.
    2) People that are like me, they want to enter and have house of their own, we are rejoicing, maybe too much over this, because price fall will have 2 year impact over whole Australian economy, and many would lose job, but we all hope it will not be us.
    3) Bank are not losers in any combination. Except in existing one.
    Let me explain this. If I don’t enter market they cant take 20-30k from my pocket on interest. Loan rate is dropping so they don’t have profit from current situation.
    If market crashes, government will bail them out therefore they will get our money any way. Now there is one subcategory to this part and lies with price fall.
    Lets draw mathematics parallel and say that all prices in houses fall exactly 20%, and what that gives us? First people will have to come up with that difference (up to line stated in contract) and people that owe more than 100% of debt and cant find money will be forced to sell houses. there will be suckers that will buy that house for 20% or even less. Bank does not lose anything because you paid insurance on your debt anyway (you are forced for all debts that are above 80% of property value). So banks will get their milking cow, jut it wont be you most leveraged people.
    This does not end situation because now people that have today up to 40% of equity have to pay insurance and that means that you will pay off your debt at least 1 year after you planed to do it (insurance cost money that would otherwise go to principal), again banksters are happy ripping you off on two fronts.
    Now because some of people would not be able to pay off both interest and insurance that would lead to further sell of increase and down pressure on prices. While prices are sliding they will cash up with revenues from people that have to sell or take insurance while more and more of people like me (future home buyers) will jump in train and take mortgage. You have to understand you took mortgage money you are not interesting to bank any more. They imprisoned you and you have to pay. I and me alike are their target because we are still debt free. At some point you will see equilibrium and prices will actually bottom and after that they will start to pick up.
    I guess that people that are not in categories mentioned above will not sell, in 10 years prices will be about the same from now, but salaries will be probably twice as much (it is called inflation).

    Now you have to take few more things you have to take in equation. Every government is considered in retaining power only, not in actually solving problems like this. Government that allows such things to happen under their watch will fail to win next election. What that gives you? Labor won last election because they introduced FHOB grant. They, due to their “capability” to lead country, will lose next election, and that is not only shown in pools, ask MP’s while they are dead drunk and if you are their friend they will tell you the same. Now trick is just to prolong “plateau” prices for some 6 months before elections and let the hot potato falls into lap of Tony Abbot. Trade of is one term for 2-4 after, when people see Liberals as incapable government that let the house price slide in like on a roller coaster and that paid 400 Billion dollars to bail out banks (so much about surplus after that).
    Now I hope that all of you for and against do understand few things from this.
    1) Will prices go down? Yes they will, question is only will Labor be able to hold this back a bit more because if they fall in between now and 1 year from now it will be all over their fingers.
    2) Will it be painful. Yes it will for indebted and the ones that will lose jobs. And it will last for 2 years from bottom before things get back in normal (with jobs).
    3) Can it be stopped for sake of ordinary people that will endure pain? And when politics and making money was anything about small ordinary people? Your and mine job is to work and pay taxes and make Banksters and similar rich so they can pay for political campaigns of Gillard and Tony. It is all the game and we, small people, are cannon fodder only.
    4) And most important. WHY house prices will go down?
    It is because they came to such levels when it is easier for people to take their money and go to US starting job there or in Vietnam or somewhere like. You investors that have 1M in property do you think you are smart?
    Go to Vietnam, China, India, Serbia, Croatia, Bulgaria, Hungary….. Even US. one million will buy you house for next to nothing, prices for manufacturing anything, are next to nothing and with remaining money of palace you bought will buy you business that will make you off better than in Australia. Yes this is best country for living in world, but housing prices are making it most unfordable. So instead becoming country with net + migration if this continues this will become country where cashed up people leave for other countries selling their houses for runner ups to social ladder, that 5 years ago came with boat to Christmas island. And that is not good for any country. Cashed up Brits were coming here selling on extreme prices their houses in UK to Romanian and Pakistani “refugees” and they crashed down UK. Same pattern will come to Australia if we continue to issue money in housing instead manufacturing. We will go down as well. As well such housing boom actually suited(suits) people of 55+ that paid houses cheap and sold it for insane money (or are planing to sell). Those caught up in between were constantly in worse position. Lets say that this Mary go Round never stops and houses continue to grow faster than inflation, I still might buy house because of my big salary but my kids have no chance. No buyers = price crash. Or you think that this will be scenario: Oh G I live in 54 000 0000 $ 3×2 house with my children and their children. I am millionaire but so as everyone that own house in Australia. Yet no one buys house. I don’t know why when they are such great investment and made me rich?
    Moral is if houses don’t drop people will stop coming to Australia and will go to US or similar places for better life, Cycle will die, prices will drop anyway and country will lose 20-30 years of development buy the time things get back to normal.

    P.S. Sorry for long story but I hope people will understand what I am saying here.