Housing is not homogenous. At a national aggregate level, price volatility in housing seems structurally low relative to other asset classes. But no one can buy the representative house in Australia. Even if house prices on average are rising, there is a risk that one’s own home is not matching the average. The lack of diversification options in housing drives up the risk profile for individual investors.
■ Sentiment risk leads median house price volatility. The dispersion of homebuyers’ sentiment readings across Australia is not strictly a measure of house price risk. But it does lead house price volatility when we take into account housing diversity.
■ De-rating in housing. Our measure of housing risk remains elevated, and higher than market-based measures of equity risk. Higher risk in an asset class should result in lower valuations, and accordingly, we expect housing to de-rate. Equity investors should tread with caution around housingexposed stocks, where valuations are yet to reflect the rise in risk. Further RBA rate cuts, associated with a weaker housing market, should support those companies providing resilient and high dividend yields.
The full text of this article is available to MacroBusiness subscribers
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
Housing is not homogenous. At a national aggregate level, price volatility in housing seems structurally low relative to other asset classes. But no one can buy the representative house in Australia. Even if house prices on average are rising, there is a risk that one’s own home is not matching the average. The lack of diversification options in housing drives up the risk profile for individual investors.
