MB Radio: The RBA, AUD and housing take-off

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With dwelling construction approvals down in June but real estate prices taking off, Gunnamatta spoke with David Llewellyn Smith and Leith van Onselen about further RBA rate cuts, a lower dollar and the prospects for Australian rebalancing.

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  1. TheRedEconomistMEMBER

    Well Done Gents

    Yet another thorough and complete review of the Australian Economic Environment

    Whet will hear from Kochie this morning.

    Good news and sunshine only.

    We do not want any punters out there spilling there Co Co Pops

    If you check his blog… You will get an idea

    Stevens and Triguboff a couple of Kochie’s idols

    http://www.kochie.com.au/Kochies-Idols/

  2. Great talk.

    On Property, just received a press release stating Sth Korean investment in Australian property to boom:

    “Foreign direct investment flow from South Korea into the Australian market is set to hit a record high in 2013, with institutional investors in Australia’s fourth largest trade market buoyed by a desire for core property and infrastructure assets, according to The Trust Company.

    The Trust Company’s General Manager – Corporate Clients, Andrew Cannane, predicted 2013 to be a watershed year with South Korean investment in foreign infrastructure and property likely to exceed $5 billion including over $1 billion to Australia. Despite retreating to focus on local investments post GFC, South Korean pensions funds, in particular, have been driving the next wave of investment into Australia with recent deals including Central Coast-based Erina Fair and Spring St in Melbourne whilst another Korean investor is in due diligence on Sydney’s Four Seasons Hotel.”

  3. Leith reckons flatlined house prices over the next decade and a drop in real prices. Seems to me Leith doesn’t want to be called as a crashnik and be marginalised as a commentator. Fair enough, he has a long game to play (though he did say he thought house prices were significantly overvalued).

    From my perspective it appears our Wile e Coyote air running is about to come to its inevitable conclusion. So many mortgages out there are interest only, rents can’t go higher in the absence of significant population growth, even with lower housing builds (yet we’ve been building more housing stock compared to population growth for 28 of the last 30 years). The coming terms of trade smash will see people will vote with their feet and move in together to obviate rising living costs and shrinking employment. We could well see rental vacancies rise and find a tipping point for those fully leveraged speculators swinging naked in the breeze.

    I’m putting my money on another global financial shock pulling the legs out from under the economy, be it China’s banking sector, plunging US growth, Euro implosion, Abenomics meeting interest rate reality, the derivatives market spiralling out of it’s rehypothecated heaven, the stock market rediscovering fundamentals matter and the all time high of leverage getting smashed, war in an oil state etc.

    Then we’ll see another rush to the exits when those over-geared get their margin calls and/or realise that a negative return on a highly geared asset that’s falling in value is a nasty liability. It won’t require a complete collapse, just enough of a shift to turn the tide and start a flood. Mean reversion, here we come…unless of course the pollies go feral on FHB schemes

    • In mid-2010, I thought Australian house prices would “crash” (i.e. 20%-plus fall) but moderated my view to the “slow melt” soon after as prices weathered the storm. I still think the “slow melt” – where housing values fall to around 2 times GDP (where they were pre-boom) – is most likely, but it could take a long time – maybe a a decade or so.

      A crash isn’t out of the question, but would require a lot of bad things to happen at once, such as a quick steep fall in commodity prices, a steeper drop-off in mining investment, and possibly a credit crunch as foreign capital exits.