2013 housing outlook

By Leith van Onselen

On 7 January, Today Tonight provided a surprisingly good report on the outlook for the Australian housing market in 2013. The video, which is provided below, provides a good summary of the year end RP Data-Rismark house price results and contains interviews with Professor Steve Keen, RP Data’s Cameron Kusher, APM’s Andrew Wilson, and John McGrath.

An interesting aspect of the segment is the generally subdued outlook for property in 2013. Some key quotes from the video include:

Steve Keen (Associate Professor UWS):

“We’ve reached the ceiling and households are now bouncing along at a level of debt that is five times the amount of debt they were carrying back in 1990″…

Keen’s advice is to “hold off.” He says “The longer you wait, the more of a deposit you are going to be able to put together, and the more prices will come down in the falling market. The best thing you can do is wait.”

Cameron Kusher (RP Data):

RP Data senior research analyst Cameron Kusher has crunched the numbers, and says the days of watching the price of your home increase year in, year out, are over.

“We’ve never seen these situations before, and you’d really have to go back to the early 1990s to see similar housing market conditions to what we’ve seen over the last few years, when we had our last recession,” Kusher said.

“I don’t think property values are going to grow as quickly over the next ten to fifteen years as they have over the past ten to fifteen years.”

“People have got time to sit on their hands and potentially get those properties cheaper in six to twelve months’ time if they waited it out.”

Andrew Wilson (APM):

Senior economist at Australian Property Monitors, Andrew Wilson, is also forecasting a slow recovery this year.

“If the economy improves, I think it will be a good time to buy early on in 2013. But generally, depending on what section of the market you are interested in, a lot will depend on where the economy goes”.

John McGrath (McGrath Estate Agents):

McGrath Estate Agents CEO John McGrath says “Sydney is somewhat the New York of Australia. It seems to be the strongest market, and in times of recover (as we’re in right now) it tends to out-perform the rest of Australia.”

According to McGrath we’re at the tail end of the toughest economic period we’ve seen for 100 years. He believes 2013 will be a stronger market with mild price growth across the country.

“Real estate should always be seen as a long-term investment, at least with a three to five year window, and right now we’re moving into a strong three to five year growth period. So from that perspective I think investing in real estate is really good timing,” McGrath said…

If you are looking to sell, you might want to hold your property. But if you have to sell, you will get a better result than you would have last year.

The Australian Financial Review (AFR) also provided its outlook for Australian property in 2013, interviewing Mirvac’s chief executive of development, Brett Draffen, and Macquarie Capital’s real estate strategist, Rod Cornish:

In a nutshell, Mirvac’s Brett Draffen notes that the interest rate cuts since November 2011 have so far not had any meaningful impact on new home sales, with low consumer confidence continuing to drag on activity. That said, Draffen is more confident that the benefits of the interest rate cuts will begin to flow through to sales activity in 2013.

Macquarie Capital’s Rod Cornish notes that the rate of interest rate cuts since November 2011 has been fairly slow compared to previous easing cycles and that, given the inherent lag in monetary policy, these cuts should begin to flow-through to affordability in 2013. With a few more interest rate cuts, Sydney’s and Perth’s housing affordability would be back to 2001 levels, which would be consistent with capital growth of around 4% to 6%.  Melbourne, by contrast, has poorer affordability and should experience lower capital growth.

Both Draffen and Cornish also believe that the lead-up to the federal election will drag on the housing market, with confidence likely to improve once the result is in.


Unconventional Economist
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    • I honestly can’t remember the last (or first) time that I have heard a RE spruiker advist that it isn’t a good time to buy now.

      It really is the RE equal to the ‘its different this time’ of stock traders. A mindless and self interested platitude that means very little.

          • ‘A lucky generation of older Australians grew wealthier as house prices rose. But they did so at the expense of their children. Is it any surprise that one third of young Australians can only purchase property with the help of their parents?

            When the gains of one generation come at the expense of the next, it’s a zero sums game.’

            As close as I have seen anyone in the MSM acknowledging that our real estate sector is a mechanism for feeding our future generations to the boomers…..

            She gets it. At some point the coming generations do to

          • This bit was interesting:

            “In 1981, the typical home sold for $48,000 – just a little over 3 times the median household income of $15,000. Today, the median home will set you back $408,000 – about six and a half times the median household income of $61,000.

            The Reserve concludes that housing is what economists call a “superior good” – households spend proportionally more on it as their income rise. Between 1980 and 2010, household disposable incomes grew by almost 50 per cent, after accounting for inflation, driven in part by rising female participation in the workforce.”

            What about all those households that don’t have two incomes? Singles aren’t entitled to dream of purchasing an abode unless they shack up with someone?

            I think the primary reason long term averages of housing prices to median income is around a 3 – 4 multiplier (here and globally) and NOT 6 or more times like Aus currently, is related more to the fact that you can only every really rely on one consistent bread earner in a family household due to the risk of job losses, pregnancies, serious illness etc + it keeps a dead consumption asset within reach of the single guys and gals and one parent families and so on out there.

            I don’t buy the whole “female participation in the workforce means houses should be twice as expensive” crap that we are sold constantly by the spruikers.

            When you consider the ABS stats, they are quite telling:

            – Over 900,000 single parent families
            – 24.3% of all households are single (lone) person households (almost 1.9 million in this category alone)
            – when you look at the employment status of couple families (with or without kids), only a little over a million of these households had two full time earners. Millions more are in part-time arrangements, one partner not working etc


            These factors suggest that there simply aren’t enough strong, two-income couple families out there who can afford to borrow for the ‘average’ house in Australia i.e. these current prices CANNOT be justified on the ole “but women are in the workforce now” chestnut.

    • Gunna, great link and very funny. I was thinking you could probably do a whole series, including one for politicans, and fund managers. You need to come up with an idea of making money from it though.
      UARE’s advanced Political science degree etc.
      Anyway it made my day

      • Cheers mate, glad you liked. I will do more and have already started a political one for the upcoming election season, and have more than enough to do something similar on investment banking. I just need to carve out the time to do it.

  1. This is all assuming I guess that the economy is going to recover, but I doubt very much that is going to happen. The US still needs to go through its fiscal cliff again in a few months, the EU is just imploding and not showing any signs of getting better. The chances of Greece turning into civil war increase daily as Golden Dawn and an ever increasing number of police who support GD increase. I can only see China slowing down if the US/EU can’t get it together. Japan is not doing very good, then you have us, recessions coming everywhere.

    So hell the how really is housing going to improve. It’s great, it should keep diving and get worse.

    • Personally I don’t see civil war in Greece as a likely outcome. If Greece deteriorates further politically then in my mind its more likely that a facist anti-immigration government will come to power and refuse to pay all foreign creditors and Greece will leave the Eurozone.

      I would still call that situation somewhat unlikely but none of us really knows what’s going on, on the ground on the streets of Athens.

      • “If Greece deteriorates further politically then in my mind its more likely that a facist anti-immigration government will come to power and refuse to pay all foreign creditors and Greece will leave the Eurozone.”

        But then what happens? What follows next will not be any better than civil war.

  2. “According to McGrath we’re at the tail end of the toughest economic period we’ve seen for 100 years. He believes 2013 will be a stronger market with mild price growth across the country.”

    Wow, so much fail in such a short paragraph. So the recession we haven’t (maybe yet) had was worse than those we actually did have in the 90s, 80s, etc.?

    • Mcgrath is wrong, the earlier recessions were tougher in Australia, although not globally.
      The current small downturn will probably be a blip in a long term mining induced period of elevated prices in housing, unless of course the world stops wanting our minerals, and how likely is that?

      • Perhaps, but I don’t think you can ignore the effect that private debt levels have on an economy.

        “Our results support the view that, beyond a certain level, debt is a drag on growth. For government debt, the threshold is around 85% of GDP.

        The immediate implication is that countries with high debt must act quickly and decisively to
        address their fiscal problems. The longer-term lesson is that, to build the fiscal buffer
        required to address extraordinary events, governments should keep debt well below the
        estimated thresholds.

        Our examination of other types of debt yields similar conclusions.

        When corporate debt goes beyond 90% of GDP, it becomes a drag on growth. And for household debt, we report a threshold around 85% of GDP, although the impact is very imprecisely estimated.”


          • Thanks for the link AB – I think that debt is an important consideration, but like every measure it has to be analysed. For example debt to oneself (grammar terrorists please note)is not as threatening as debt to an overseas investor, and of course some government debt is crucial to the banking system.

            I would be unconcerned about lending the US government money when they have a 100% debt to GDP ratio, but I would be concerned lending to Greece in precisely the same predicament.

            A blanket measure of 85% in itself is meaningless. I notice that BIS are not lecturing the USA, and although ratings agencies have downgraded the USA, the market has taken absolutely no notice of those agencies.

            Can you tell me why that is so?

          • I disagree that the 85% is meaningless – that’s the figure beyond which debt becomes a drag on growth (according to the researchers).

            It’s not the figure beyond which lending abruptly becomes more risky as you seem to imply.

            “Starting from Table 2, we see that there is a negative within-country (or time-series) correlation between growth and total non-financial debt

            Looking at the details, we see that both non-financial corporate and household debt display a statistically and economically significant negative correlation with growth

            For corporate debt, a 1 percentage point increase is associated with an approximately 2 basis point reduction in per capita GDP growth. For household debt, the impact is even larger: a 1 percentage point rise in household debt-to-GDP is associated with a 21⁄2 basis point reduction in growth.”

          • Surely AB the percentage of debt would depend on the need for investment and the return on that investment. Australia has always had a large corporate debt due to investments in mining etc, which in turn adds to our output.

            I remain unconvinced that there is a one size fits all ratio, but if you have some stats or graphs that you can link to then I would appreciate that.


          • What is so hard to understand about debt levels being an eventual drag on growth? Borrowing can not grow unabated forever and at some point deleveraging is inevitable. The fact that Australia has been insulated from forced deleveraging to date due to China’s FAI boom doesn’t change that fact.

            Given that the largest component of Australia’s debt is household debt, the overwhelming majority of this is mortgage debt (roughly 85% of GDP) and that a large portion of this has been funded from overseas borrowing speaks to just how serious the situation is. This money has not been invested in “productive assets”.

            It seems obvious to me that:

            1) we have a housing bubble fueled by overseas borrowing
            2) deleveraging is inevitable and
            3) house prices and GDP growth will decline as a result

            Am I missing something?

          • Perfectly put DrCole,

            All the obfuscation, all the Trompe-l’œil conceptual bullshido spouted forth by industry advocates in forums just like this doesnt get away from the points you put simply and clearly.

            But the other point to go with those is that because mortgages are so much of the effective collateral for the international bank borrowings which Australian banks use to fund Australian mortgages means that there will be considerable resistance to acknowledging falling property prices (and hence falling collateral values for those banks).

          • DrCole – we have highish household debt because successive governments have run a surplus.

            Combined household, Corporate and Government debt is not as high as you think.

            Here is a comparison of external debt (which seems to concern you) that may sober you up a little. http://www.cnbc.com/id/30308959/page/5
            It’s a year or so old now, but still relevant. Note that we are much better off than many countries who are placed on pedestals as doyens of fiscal responsibility.

          • Peter,
            I find it strange that you argue that “a blanket measure of 85% (debt) in itself is meaningless.” and yet argue that because Australia’s absolute level of debt is not as high of some other countries there isn’t a problem.

            Low government debt does not change the fact that Australian households are massively leveraged using overseas capital to speculate on property.
            The only country with higher household debt to GDP I believe is Ireland – probably the worst performing property market globally since the bubble burst.

            Australia’s net international investment position puts it in fairly unenviable company (the PIGS).
            The only difference is it is households that have done the borrowing, not the government.

          • “The only country with higher household debt to GDP I believe is Ireland – probably the worst performing property market globally since the bubble burst.

            Australia’s net international investment position puts it in fairly unenviable company (the PIGS).

            The only difference is it is households that have done the borrowing, not the government.”

            From memory, Ireland’s government debt level was similar to ours before their bust (~25% of GDP). The problem is that excessive private debt inevitably ends up being socialised.

          • DNE – there is a massive difference between the debt instruments and the lending standards used in the USA and here – and I think that I do speak from a position of hands on experience. The toxic debt products in the USA were equal to weapons of terrorism – we didn’t have that. There is a good book on this subject that I’m waiting to get my hands on, if you’re interested I will get the title for you.

            DrCole – I look at private debt levels every day. It’s certainly a factor but it’s not the only factor.

            People compare different periods, but they don’t include all factors such as tax rates, increased welfare, two incomes, the change in purchasing power, the use of the internet to buy items from anywhere in the world, and of course interest rates.

            I’m unlikely to convince you, and you are unlikely to change my views, so let’s leave it at that.

          • dumb_non_economist


            I don’t think you idea on lending standards has anything to do with effect of Gov debt around the 85% mark of GDP, however if I’m wrong I’m sure the authors of both articles (I’m also sure there are more along those lines) and the likes of Prof Steve Keen must have considered your points and obviously see no merit in them!

            I’m also not aware that this is meant to be contentious, but I’ve been wrong on most counts in my life lol.

        • The drag is caused by the austerity that most countries adopt once debt gets to those levels. Whether they need to if they have a national sovereign free floating, non-convertible fiat currency can be left to one side. Clearly countries like members of the Euro zone have no option as they have to obtain their currency from an entity outside their control (ECB) or from other member states or from other users of the Euro such as households or corporates. Similarly when the world was on a gold standard or the Bretton Woods fixed exchange rate regime virtually all major economies were in the same postion as the PIIGS of today. In either case however it is the austerity that is the drag on growth, not the mere debt level.

          Once the government sector introduces austerity to try to produce a surplus, then in the absence of an offsetting change in the external position, there will be a fall in GDP unless the private sector borrows to increase their spending or the rate of change is so small that inflation hides the real cuts. If the private sector refuses to increase debt to spend more to offset government austerity then government surplus is at the cost of a private sector deficit. A private sector deficit causes lower spending, production, employment and ultimately recession.

          Even stopping the growth of debt slows the economy. Steve Keen has done much work on this, including the “mortgage pulse”efect on house prices.

      • PF
        Generally agree with you, the world will continue to want minerals….just not sure they will necessarily be ours for the prices we operate at.

        • misc1974 – that is an undeniable point, they might source elsewhere. I believe our costs are lower than most other countries. It’s a factor of overburden ratios and purity of content, but I’m no iron ore expert so perhaps someone else can give you greater detail.

          • It’s to do with the landed cost in China which includes the seaborne content of that formula. Fortunately , Australia is in close proximity compared to the competition and for the Big 2 , extraction costs are very competitive. What that means is pricing flexibility for what is high quality ore. Commonly known as a “sweet spot”.

      • I’d agree Pete. This isn’t a blip on the late ’80s, let alone some of the other ‘recessions’. We’re not even in a recession!

    • anyone got any up to date data on……

      private debt to GDP
      private debt to disposable income
      housing debt to GDP
      owner occupier housing debt to GDP

    • While we have been wonking away, sniffing each others’ farts in the bear cave, growling at PF, Jessica Irvine has just laid hard evidence in clear language before the bogans.

      “Over the past five years, home prices have clocked average annual growth of just 1.9 per cent. You would have been better with your money in the bank.”

      And that stat is nominal, not real.

      Don’t Buy Now!

      • “You would have been better with your money in the bank.”

        Silly statement from perspective of most owner-occupier homebuyers – you can’t live in a bank. For said owner-occupiers housing is much more than a simple ‘investment’. Might be a different story for investors – but over what timeframe?

        • Regardless, statements like this will have an impact, the property investment zeitgeist which has prevailed the last decade is being demolished by the same MSM who imposed it in the first place.

        • Maybe she should have written: “you would have been better off renting for half the price and putting the other half in the bank”.

        • Sounds like you are synergising, 31dk, taking commissions from both the miners AND politico-housing complex. Think of the economies of scale!

          No, you can’t live in a bank, but renting is a fraction of buying costs and remains the more sensible option for non-owners. DBN

          • Synergising, mmmmm might look into that David 😉

            My point was simply that for many housing is much more than a mere ‘investment’; seen as repository for hopes, dreams, stability and family – as evidenced by the many who comment here at MB still wanting to get into the property market but reluctant to do so at current prices. Others take the plunge, rightly or wrongly – but nonetheless willingly.

    • “We have been forced to confront a fundamental truth about property: it is only worth what people can afford to pay for it.”


      • C.M.BurnsMEMBER

        half correct. (Property) is only what people can afford to pay for it and what the bank is prepared to lend.

        Australian banks reliance on overseas funds for future lending (who is going to leave money with banks under zirp?) will act as a throttle on any price increase.

      • In Australia its been what banks have offered to lend. The average Australian, rightly or wrongly, may have assumed that’s what they could afford to borrow! The revered banks couldn’t be wrong after all? could they?

        • I have been saying exactly this to loads of people who don’t want to believe the awful truth.

    • Sobering outlook from a MSM commentator. Drumming home the idea that any future price rises are unlikely. And as this continues, I think it will contribute instead to further price fall’s as many investors realise that zero gains are not worth the trouble and decide to sell now / avoid purchasing.

  3. The Kouk is out tweeting

    Stephen Koukoulas @TheKouk

    House prices up a notable 0.5% in first 9 days on 2013 according to @rpdata I still reckon we’ll see about 10% gain this year

  4. I think this comment says it all.

    “We’ve never seen these situations before, and you’d really have to go back to the early 1990s to see similar housing market conditions to what we’ve seen over the last few years, when we had our last recession,” Kusher said.

    Short memories. When did “never before” become 25 years ago?

    • I think he’s implying that we have never seen personal debt levels this high when compared to previous bubbles like the 1990’s.

      It’s a grammatically poor sentence that would benefit from a full stop after “ We’ve never seen these situations before,”

      (I will not be a grammar Nazi, I will not be a….)

    • Ha it does seem a little pessimistic, even to someone like me who would love to see a -40% reversion to mean.

      In the related articles – but on the other side of the feces-flinging-fight – there was this:

      Apparently rates are lower and staying there, prices are lower, the market has bottomed and the fundamentals are ‘strong’! Time to start buying as much property as you can Australia!

      Hard to trust somebody who ‘didn’t see something coming’, who then claims to be the expert on when it will end.

  5. I reviewed Kouk’s 2012 forecasts:

    1. bonds about 3.3%, not 4% and not likely to be just a 3 month timing difference.
    2. 2013 interest rate cuts still expected by many so cutting phase likely not over
    3. GDP growth lower than his expected 3.5 or 4%
    4. Inflation reasonably close.
    5. Unemployment not quite as bad as expected.
    6. AUD 1.05 rather than 90c US – significant miss
    7. Nailed the outcome on stocks being higher (approx 4150 to 4660 – up over 12%)
    8. House prices didn’t fall 10% nationally but some markets did.
    9. Mining investment forecast was pretty good but not re the fall in AUD.
    10. No $10B surplus likely. (Looks to me like the impact of austerity/fiscal consolidation on activity and spending, profits and taxes was underestimated.)
    11. Looking good on Abbott and Gillard and a late 2013 election (but either leader could be forced out due to unpopularity).
    12. RBA and bank rates relationship: spot on!

    Overall, probably better than average except currency and deficit.

      • He’s far more explicit about house prices today. http://www.businessspectator.com.au/bs.nsf/Article/Australian-house-prices-property-market-interest-r-pd20130110-3SR4N?OpenDocument&src=sph&src=rot

        “In my pre-Christmas piece I mused that house prices could rise by around 10 per cent this year.

        There was not a lot of opportunity in that column to expand on the background to that forecast but it is apparent that such a bullish call in house prices is unpopular with a range of other forecasters thinking that house prices will be closer to flat through 2013. Some of the usual suspects expect prices to fall again, an expectation that would mean a never before seen three straight years of falling house prices in Australia.”

        And this bit just makes me laugh. Since when did close to the highest household debt levels in the world mean that our household finances are in sound shape?

        “Added to that, consumer finances are in sound shape. Saving levels have been replenished over recent years and many borrowers have taken advantages of the current interest rate cutting cycle to pay off the principle in their current mortgage. This robust balance sheet for consumers frees them up to ramp up borrowing and bid up house prices in the not too distant future.”

  6. Interesting that John McGrath recommends sellers to hold. To me that reads: we need stock on the market to fall or else the market will fall further. I find it rather unbelievable that he expects strong 3-5 years ahead, when those are precisely the very risky years ahead if one looks at the combined effects of issues evolving in Europe and China, even if US is slowly recovering in the background.
    Wishful thinking and calming words IMO.

    Keen’s words are the most honest and reliable, as usual.

    • re Gladstone
      Peet are flogging a large Gladstone development of vacant lots and shiny new houses, now heavily discounted and starting to effect the market.

      I love the sound of a functioning price mechanism.

      Maybe we should send them north to Bubbley town.

      • That would make my millennium!

        Send us your downtrodden, your disappointed, your distressed builders. We will take them and nurture them and give them plenty of opportunity.

        A few bribes to local officials may help facilitate this.