MS: Housing to fade without rate cut

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The SMH is reporting that:

In a note to investors analysts at investment bank Morgan Stanley said “without further interest rate cuts the current housing cycle is in danger of gradually fading”.

A potential glut of apartments may undermine unit values in inner city areas, while galloping house prices will soon run out of puff unless the Reserve Bank cuts rates again this cycle, the report says.

“As this supply is delivered over the next few years, it may pressure rental levels and home prices…Longer term, we believe that the excess returns from residential property investment are dissipating, as the one-off positives from lower mortgage rates, rising household leverage and creation of dual-income households cannot be repeated.”

Morgan Stanley property analyst Lou Pirenc argues the oversupply of new apartments in 2014 will also have an effect on house prices in inner city areas, as Mirvac and the Goodman Group accelerate property lot delivery.

 

Right on. Add the general state of the economy as the external shock gets worse, incomes remains under pressure, QLD and WA go off the mining investment cliff and the Government hits confidence with poorly managed austerity and a fade could accelerate swiftly. If Sydney rolls, it will not reverse gently:

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Rates are going lower.

David Llewellyn-Smith
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Comments

  1. Torchwood1979

    I wouldn’t be too concerned about a “crash” if not for the near orbital trajectory Sydney has been on and the fact that this time us mining states won’t be able to take up the slack. If the Sydneysiders start to panic it could spread without another capital or two to contain the general skittishness.

  2. I am not necessarily arguing their conclusion but any analysis of the property market that ignores the marginal buyer (Chinese) is a flawed analysis.

  3. johnathonbbbrown

    We have the LOWEST interest rates in history and all H & H can say is they need to go lower (so he pays less on his massive mortgage).

    • @ jonathonbbbrown
      That’s a bit unfair. What was called for was the right combination of MP tools and lower rates which would have the desired effect without pushing house prices to the moon.

      I think that you need to read the statements made, and not read something different into them.

  4. The Patrician

    I knew if we looked hard enough we could find and emergency to justify further emergency level interest rates.
    We’ve got a housing OVERsupply emergency!
    FFS.
    If the consequences weren’t so damaging it would be farcical.

  5. What do you mean “IF” Sydney rolls?? Look at the curve… on what planet is that shit sustainable?

  6. outsidetrader

    An interest rate cut is long overdue – after all – “rates are always lower under a coalition government.”

    • Mining BoganMEMBER

      Ha! Impossible! Why, even just this morning I was chatting to a fellow bogan who told me, with much excitement, that his new home, which as just reached pouring the slab stage, is now valued at 50 grand more than when the plans were first drawn early this year.

      He wouldn’t lie to me. Someone may have lied to him though…and he wants to believe.

      I want it to start in WA.

  7. There is a lot of wishful thinking going on on this website.

    You say that interest rate cuts are coming. This means Sydney property prices are going up, no matter what else happens.

    The only thing that matters to Sydney property prices is interest rates.

    The obsession with property in that city is unmatched. People will look for any excuse to increase their leverage.

    If some people loses their jobs and cant maintain the mortgages, otherwise will just take up the slack by increasing their leverage and not having any trouble to do so when interest rates are at 1-2%.

    The only way this pattern will be broken is with a massive deflationary collapse, or with seizing up of credit ala GFC or if interest rates are forced up by inflation (war in the middle east, AUD collapse etc). I don’t know enough to say how likely that is. We will most likely grumble along with zerobound interest rates for decades, and a zombie property sector.