From the AFR comes reference to yet another housing report today:
House prices in Sydney, Brisbane and Perth will recover over the next three years, while the other state capitals will experience weak conditions until mid-2015, according to BIS Shrapnel.
The LMI Housing Outlook for 2012-2015, prepared by BIS Shrapnel, forecasts house prices in Sydney will increase by a total of 16.7 per cent between 2013 and 2015. The median house price in Sydney dropped by 1 per cent in 2012.
Here are the report’s price forecasts:
That’s right, it’s going to be a $750k median for Sydney in 2015. Some of the other cities are a little more conservative but they’re all gunna rise. From the sublime, however, when we turn to the economic assumptions, we find the ridiculous:
Do not adjust your television set. Here are the conditions being forecast by BIS:
- GDP at 3.8% in 2014 and ripping along either side
- unemployment at 4.6% in 2014 and ripping either side
- average weekly earnings growth averaging above 5% throughout
They’re right, house prices are going to the moon in this scenario. Except the scenario itself is delusional:
Question: How on earth is private investment going to run at an average growth rate of 10% per annum as the mining boom ends?
- Answer: It’s not. From mid next year, private investment is going to begin detracting from GDP. If the RBA succeeds in boosting residential construction then there’ll be an offset to this drag by 2014.
- Answer: It’s not. Income growth is going to halve as the terms of trade continues to fall. That’s why rates are also falling. Only historical levels of credit growth will be enough to offset this and by definition they can’t because that would require further offshore borrowing.
