SQM turns bullish on house prices

Find below the press release for SQM’s new bullish house price predictions for the next eighteen month. They are certainly more sober than the reporting at the AFR suggests. A firming in house prices over the next 6-9 months is quite possible, based on the same condition you will see in SQM’s chart, that the terms of trade do not fall further, but interest rates do, which is my base case. And if it happens, you can be certain that bullish rhetoric will reach fever pitch.

In my view, however, the fall in the terms of trade is structural, and will resume after being nursed through the Chinese leadership transition (unless they change their minds and plant the stimulus foot). That means that beyond mid next year, the prospects for local assets is troubling. I would equate this view with The Prince’s take on the current stock market. Sure you can have cyclical rallies but the structural trend is a bear market…

Christopher’s Housing Boom and Bust Report 2012/2013

The housing market is about to enter in to an imminent recovery phase, according to the latest annual release of Christopher’s Housing Boom and Bust Report.

SQM Research has released Christopher’s Housing Boom and Bust Report for 2012/2013 today! The document details Louis Christopher’s (SQM Research’s Managing Director and respected property analyst) assessment of the current property market on a national scale and his future predictions concerning the direction that Australian real estate will take in the near future.

Mr Christopher, who is renowned for his candid, impartial approach to the Australian property market as well as his past correct predictions concerning the housing market, has outlined his personal forecasts in this report along with information regarding capital city forecasts. He has also included the company’s past forecasts along with commentary – an element which he believes to be essential to any analyst with integrity. Christopher feels quite strongly about being accountable for previous forecasts as it is his belief that it is something many analysts in the industry shy away from.

Entailed below is the SQM Research base case forecast for the remainder of 2012 and 2013. Other forecasts and scenarios are detailed within the report itself.

SQM Research predicts outperformance for Darwin, Sydney and Perth with the average capital city gain in 2013 to be between +4% – +7%.

Speaking of the report, Louis Christopher says “The housing downturn that commenced in 2010 for most capital cities has just about run its course. Interest rate cuts appear to be creating a bottom in the housing market and the prospect of more rate cuts will likely create a rise in dwelling prices for the remainder of this year and into 2013. The rate of recovery is going to vary from city to city but all cities should positively respond to the rate cuts. 
We are also forecasting that the significant downturn in the certain holiday locations around the country such as the Gold Coast and the Sunshine Coast is also coming to its end. Never the less, the recovery is not likely to be particularly strong for the first year as there is still an excess of listings on the market that need to be absorbed first and that is going to take some time to happen.”

David Llewellyn-Smith
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  1. If this were to play out, I’d seriously have to consider pulling up stumps in Australia and moving back to the USA. It’s just not worth the cost to live here.

    • +1. The only things stopping me are the medical insurance and medical costs thing is the US, which are disgraceful.

      • +1

        Yes, medical costs AND the much higher probability of having your brains blown out by some disgruntled psycopath at your local cinema, university, [insert name of public place here]…..

        • Yeah – not so much. There’s not really a big chance of being murdered by a stranger. Health Insurance a fraction of feck all compared with the costs of living in Australia. Why do Aussies feel the need to throw their feces whenever the US is mentioned? It’s like a special kind of mental illness.

          • George dont forget Martin Bryant,and last weekends race riots, And the US is sort of like Telstra, it is so big it is easy to find a problem.

          • Cognitive Dissonance

            It is interesting what people see when they look in the mirror.

            When I come home at night now and turn on the (local) news I get to hear about a shotting, house fire and or a weather event, very different to 5 years ago.

            I would be much more worried about hopping into a car than being murdered if you look to statistics, but car accidents just don’t seems to grab the amygdale.

          • @kodiak it’s because there is a genuine perception that these things are a problem. Health insurance costs in the US are fine just as long as you’re healthy, and gun crime is a much larger problem in the US than in Australia. The per-capita rates there are far higher than Aus, so if that’s a concern in someone’s head they’re going to voice it.

            Don’t like it or the costs of living here? Don’t let the door hit you on the way out.

          • Dont get me wrong.
            I’m not a US basher.
            Far from it.

            Perhaps the chances of being gunned down by a stranger are small (depending on where u live).
            But it is also true that:
            1) The odds are still MUCH higher than in Aust.
            2) There are an alarming number of ‘normal’ citizens owning and carrying firearms. This at least creates a potential for massive public violence that we dont haveto constantly live with in Aust.

            At least our political classes had the bravery and common sense to remove some of the most dangerous and most unnecessary weapons from public circulation after the Port Arthur Tragedy.

          • @ Karan: Perception is the perfect word for you to use, because your reality is somewhere in the 90s. I’ve been robbed three times in 4 years here versus zero times in my native crime-ridden New York. Perception and reality are two different things. The standard of living has slipped dramatically in Australia in the last 20 years. I won’t be looking back. You can have it.

          • Why do Aussies feel the need to throw their feces whenever the US is mentioned?
            Australians over the last 10-15 years have developed some rather ugly nationalist tendencies – “Australian Exceptionalism” – egged on by the likes of Howard and Abbot who primarily use it to generate rage against a handful of poor brown people.

            This cultural shift has largely come from mimicking American culture, where the same attitudes are also rampant, and manipulated even more effectively and comprehensively by their right-wing political parties.

          • It seems that many Aussies have US gun stories, but it does beg credulity that I have lived for 30 years in urban areas in the US and have never witnessed anything like what you describe.

      • Healthcare was my main concern as well, but worst case, we’ve got an Aussie Platinum card with up to 1 year’s travel insurance on it, so…

        Once you get a perm position in the US you’re “good” (or as good as you can be in that shitty “healthcare” system), but yes, that was my FIRST concern.

        Second was the job market, but as I said below, there seems to be IT jobs in NorCal at good rates per friends I worked with back in the DotCom days as well as other opportunities state-side (but then you’re on your own insurance…).

        There are definitely risks (not least of which is my realization that I want an Aussie daughter, NOT an American one!), but with the situation in Oz falling apart as it is, the rewards look pretty good, to us at least.

        • It shouldn’t be a concern. Once you’re working you’ll be covered. I never understand it when I hear Australians talk about health care. We’ve had one pregnancy in the US and one in Aus. The experience was better in the US. Mayo, Cleveland. Sloan-Kettering – this is where people go to get the best in cardio and cancer care.

          The way you describe it with your daughter, you seem to place some kind of premium on being Australian compared with being American. That’s just bigotry.

          • Naw, not bigotry… please let me explain… The last time I flew to the US I had an experience.

            I was sitting on the tarmac in SYD on a Qantas flight on the right side of the 747. 2 rows in front of me in the center section was a generally attractive American girl, about 22 or so, that had gotten up to remove something from her bag in the overhead bin in the near row. People were still loading and she was stopping up the line for a good minute to pull out her whatever. She was annoyed that people were nicely asking her to move into the row so they could get to their seats.

            Also in my line of sight was a young attractive Qantas Flight Attendant of about the same age offering snacks to fellow cattle-class passengers in the far row. She was patiently waiting for the couple she was about to offer the snacks to break their conversation so that she could interject. She waited at good 20-30 seconds before her opportunity came, all without a sneer nor an eye-roll (both of which came from the gringa).

            This experience effected me, as trivial and fleeting as it was. In it I saw the “typical” American girl and the “typical” Aussie girl. Just the way that they carried themselves so very differently… and in my opinion it represented a microcosm of American and Aussie social norms. And, frankly, I prefer Oz in this case. That’s why I want my daughter to be an Aussie.

            Now… I’m a born a bread California lad, so I guess you can chalk em up as a self-hating American. That’s probably quite accurate, actually!

          • For what it’s worth, my daughter has variously been Australian, American, English, then Australian again. In all that time she’s been a delight, although her accent has changed a bit 🙂

          • That’s just selectively filtered nonsense that might have been true years ago. The shoe is well on the other foot after two decades without a recession. My anecdotes tell the opposite story.

      • The only things stopping me are the medical insurance and medical costs thing is the US, which are disgraceful.

        They’re not really a problem so long as you’re sufficiently well employed to have employer-provided health insurance.

        Personally, I struggled with the politics when I was living in the US – the polarisation was just depressing (as Australia has mostly become in the last decade or so).

    • Funny, but the wife and I have basically just made that EXACT SAME decision!

      We sold our unit in 2010 (thank you FHBG*2!) and have been renting ever since. My wife ran the numbers and we can either continue to pay $24k+/year in rent in our crap-shack, or we can buy a 4/3 in Northern California (back where my family is) for cash. If we wanted to go bargain, we could get a 3/2 for the cost of the 5 years in rent we plan to avoid in the US.

      Sure… I’ll not be on Canberra IT Contractor wages in NorCal, but the contract placements have been fewer and farther between over the last 2 years. With the odd month or two off here and there I’ve had I’m no longer on contractor rates down here either! And this process will only continue to worsen. I looked at going perm but it’s a drop of over $1000 a week TAKEHOME(!).

      So… lower costs of living in the US, supposedly there are IT jobs to be had in NorCal, and my wife can work towards her US citizenship. That gives us a bit more then 5 years to wait out the property market correction in the US (not to mention AUD readjust).

      Looking at it, it’s a no-brainer for us! Oddly, I was the one hesitant at first at the idea. But we’re all blond-haired and blue-eyed, so should the US situation continue to deteriorate we’ll fit Reich in!

      • And California is the most EXPENSIVE part of the USA…..!

        FYI: the tech sectors are booming in Austin TX and Raleigh NC and a few other places in the South, and living is CHEEEAP.

        I recommend the essays of Joel Kotkin, posted regularly on “New Geography”, to provide a non-mainstream insight into what is going on in the different parts of the USA.

        You’ve got to watch out, relying too much on California, it has turned into the “Britain” of the USA, with enviro protections strangling growth and pushing the cost of land and living up; and the cyclical volatility of housing and indeed the whole economy. And the State’s fiscal situation is in the tank, there are massive unfunded liabilities, and no political will to make tough decisions; very similar to Greece only without the riots.

        • Couldn’t agree more… but family and friends are in NorCal (just like family and friends being in Canberra, damnit). And as I said, there are some “agnostic” jobs that can be done from Cali (but not so politically-able from Oz). The housing is pretty damned good price wise for what we are looking for (133% of Texas maybe), still more but not horrifically. Plus, I’ve lived in Texas, and while I very much enjoyed it… dem’s different people dare in Texas!

    • Any chance of encouraging you to POQ?

      Go back to your warmongering country -the one that’s stuffed up the rest of the world + it’s own mostly helpless populance.

      Yanks with attitude are a reminder we don’t need.

      • And what we do with even less is this sort of bogan jingoistic behaviour.

        Outside of the 7 most crime ridden cities of the U.S., the U.S is on average the safest anglo-sphere country in the world.

        I personally am a fan of the 2nd ammendment. It is not a charter for nutjobs to use Glock 9mm’s as can openers.

        For a modern comparable, it is to ensure the majority can remove the likes of those that populate wall street when elected officials can no longer be trusted to do the right thing

        • “For a modern comparable, it is to ensure the majority can remove the likes of those that populate wall street when elected officials can no longer be trusted to do the right thing”

          Something along the lines of a Munich Beer Hall Putsch?

          If that is the true intention of 2nd Amendment I would suggest that it follows therein that ‘normal’ citizens are within their rights to ‘bear’ Stinger missiles.
          Scary logic.

          • Something along the lines of a Munich Beer Hall Putsch?

            That can occur yes.

            But equally, something along the lines of overthrowing Ceausescu.

          • @Rusty Penny

            I think you need to ask yourself honestly, what are the real chances of the USA turning into a totalitarian state?

            If any country has “democracy” hard wired into its DNA, it is that country.

            You’ve got:
            a) Rigid separation of powers between Executive, Legislative and Judicial branches
            b) A Federal governmental structure where power is contested between States and the Federal Government
            c) An explicit, written constitution protecting citizens rights to free speech etc.
            d) Over 200 hundred years of proud democratic tradition.

            If anything, the USA suffers from democratic overload and gridlock.

            I’m trying to imagine a circumstance where the USA could transform into a dictatorship that would justify a citizens uprising.

            I just don’t see it.

          • “If anything, the USA suffers from democratic overload and gridlock.”

            And lest that remark be misinterpreted let me just invoke the famous words of Churchill

            “It has been said that democracy is the worst form of government except all the others that have been tried.”

          • The chances are rmote, so an armed citizen rebellion would also be remote.

            However, a dictatorship doesn’t have to exist, we see something pretty toxic already with a compromised legislature, and some judiciaries tainted political appointees.

            It is not implausible that all forms of the democratic preocess to be captured by elite interests. In fact, to me it is disheartening to see the U.S. where it is now. It has been since 1776 a beacon of light where one could flee tyranny.

            Australia right now is something worth considering to flee and leaving to the baby boomers.

            What is enshrined in the U.S however is that if the populace collectively feels aggitated enough, they can remove an ill-suited regime.

            Jefferson himself pondered they are more prone to be subjected to despotic rule from within than abroad.

      • I agree, there can be positive blips along the way, but the above forecasts are overly optimistic in my view. I think global economic conditions will worsen considerably next year. Several shocks are coming.

        • +1

          Looking ahead as compared to back over the last 3-4 years, the economic conditions in Australia are set to materially worsen. Even with lower interest rates, confidence is going to be spooked. At best a general flattening of the decline we have been seeing in RE prices but the risk is to the downside IMO.

          • No doubt prices have already firmed though. I see it my own neighbourhood.

            No doubt the adjustment is structural but all markets have those that like to catch the falling knife.

          • I’m in my usual state…confused!

            House prices shouldn’t be where they are. The whole thing is insane. The whole valuation of houses vs productive assets in this country is so far askew after 20 (IMO 50) years of what amounts to fraudulent mis-allocation, yet the b…dy prices are now rising again!

            We can opine it is short term. However a lot of us have been opining that for a long long time.

            Going back to sectors….thinking out loud if you like…Govt is going to run huge deficits (I think? we agree; the foreign money seems likely to continue to flow in buying up assets; Bernank and Dragster are going to print their little hearts out so the carry trade will remain intact.

            Now, result is we have loose cash floating round in Aus at negative RAT rates. There is nothing else that one can invest in. The loose cash is likely to go to houses.

            If this house thing kicks again the slight ‘fear’ factor of the past year or two quickly passes. In any case it’s only us on Keen’s or MB sites that aware of any problem with the current model.

            So you bring on lower interest rates housing looks like the way to go! What else do we expect to happen with lower interest rates?
            I’m ‘shopping’ RE on both the Gold Coast and the Sunshine Coast at the moment. I can tell you both markets have moved significantly although more towards the lower end.

            As I said I’m thinking out loud not married to this idea. It’s just an alternate possibility.

          • Me too, Flawse; I am learning and refining my understanding of “overpriced housing” as events unfold.

            There are several differing factors between the housing bubbles in California, Nevada, Arizona, Florida, Ireland, Spain, the UK, Canada and Australia.

            Consider this: the crash happened “first” in the USA, THEN the central bank tried to clean up the mess afterwards. In Australia, the Central Bank has been trying in advance, possibly with covert means, to stop the bubble bursting at all. This has just inflated it more, of course – the crucial factor is the “supply” of urban land for development. Glenn Stevens was clear about this once, goodness knows what made him lose his marbles and his spine.

            In Nevada, Arizona, Florida, Ireland, and Spain, actual serious overbuilding occurred besides the price inflation; this made the whole thing much more vulnerable and volatile. Maybe Australia will turn out to be more like the UK – no actual “crash”, just relentless trends to greater and greater shortages of housing, unaffordability, inequality, social exclusion, declining productivity and declining economic competitiveness.

            But I am utterly skeptical that the UK can keep this up forever, nor Australia. I think the longer you keep this up, the bigger the mess has to be finally, one day.

            It is significant that people are so ignorant about the basic causes; young people should be clubbing together to build “illegal housing” on legally bought farmland, now THAT would be “affordable housing”, and it would highlight the problem at its root. There actually are suggestions of this in the UK, things have got so bad.

          • Phil agree pretty much especially the unsustainable part…but I’m an old b….d and this unsustainable part has now been persisting for 50 years….what the hell…maybe it can go another 50!!!

            Sorry…just venting my spleen I guess!

        • The headline should read “Dead cat bounces…”

          …after landing on rising local unemployment, over-valued dollar, mining boom drastically slowing, terms of trade falling, Greece and Spain in the bailout queue, China shifting gears, America’s fiscal cliff etc etc.

          Yeah right, interest rate cuts will make all the difference because we’re different here. No doubt the 800,000 negatively geared owners are praying so.

  2. this is a trick played by RE man

    House prices will go up only if nothing changes in our economy but the interest rates. What do you think, why RBA is cutting?

    • raves….maybe nothing changes. Sure the CAD gets worse but the money printing and sales of assets cover that…easily. Govt runs a deficit. This leaves the private sector aflood with loose cash.
      So what changes?

      (Note genuine question looking for other opinions…not picking a fight! 🙂 )

      • I don’t know Flawse. Suggest no one does.

        What I am quietly confident of, however, is that Australia is just a pissant little cork bobbing on the great ocean of global events … with a bunch of white ants eating our little cork away from the inside.

  3. SQM periodically turn bullish, only to reassess when conditions prove softer than expected. No problem with this, at least they adjust their views based on the facts.

    I think a temporary bottom is in i.e. falls are decelerating, pending further events. These events should all surprise to the downside IMO. The RBA will likely then wish it hadnt cut so far.

  4. many scenarios are plausible from small rises to large falls. But as I have stated many times, when you rent a house with a gross yield of 2.5%, you need healthy cap gains of 6-7% to break even.

    … that said, i also dont underestimate stupidity of govts, central banks and home buyers – so there is always the small possibility of a a blow out again if govt and central policy conspire to do this – Auckland is a case in point at the moment, as is London. Cheap money, lax foreign investment laws for chinese looking for a currency hedge, punishment of savers, generous tax concessions etc can all conspire to turn a ludicrous situation into something worse. For the most past this does not work (eg Spain, USA, Ireland, most of NZ, most of UK etc), but it certainly can work in the short / medium term and generally in those areas considered more desirable.

    • Yes suirrell…it’s called financial repression. I can attest to the London market as members of my family, who know what they are doing around money (smarter than me), have been buying there recently.

      • They’d better sell out before the crash finally does come, though. These bubbles cannot last. Remember when one block in Tokyo was “worth more than Canada”?

        • Philbest,
          not saying bubbles can always be maintained indefinately by govts, but they can be maintained for as long as there is capacity so long as the ignorant public let them.

  5. …. and lets face it, RBA monetary policy has got nothing to do with the general economy and everything to do with stoking house prices.

    • Absolutely, they have completely missed all the academic analysis that has been going on in the UK, which is where the experiment in “urban growth containment” has been going on for the longest.

      It is not just that housing is unaffordable, economic productivity is affected by literally a percent or two every year, and of course this compounds. The McKinsey Institute suggested in 1998 that the UK economy was 20% to 40% less productive because of its urban planning system. Every other sector of the economy had been liberalised in the Thatcher era. “Thatchernomics” has been held by some to have “failed”; actually the failure was that Thatcher did not abolish the urban planning system. Regardless of everything else the UK does, if it keeps “constraining urban growth”, it is toast. Same for Australia, they are just a bit later to commence the process.