Crikey fabricates housing bear panic

Somebody just sent me this piece from Crikey:

In recent months we’ve seen a doom ‘n’ gloom bidding war on property prices by foreign bank analysts and the media. Last month it was Morgan Stanley claiming the biggest fall since Fraser was prime minister; this week it was UBS and its claim of a 30% price slide. Old mate Martin North reckoned 40-45% earlier in the year on 60 Minutes. Anyone care to bid 50%?

Fairfax and News Corp love it, of course — Fairfax will run a prominent story on literally any two-bit screen jockey who makes a ridiculous claim about property prices.

News Corp owns 61% of REA Group, the country’s biggest property listings website operator, and Fairfax Media owns 59% of Domain, the second biggest. The newspapers and websites of both companies carry dozens of stories a week on property prices, hidden bargains, traps for buyers, tips for young players, the biggest rises and falls — all property-porn clickbait to cash in on our obsession with real estate, especially in Sydney. Expect plenty more when Nine takes over Fairfax and Domain begins working with Nine’s tabloid TV offerings.

But there’s one key figure that discredits the myth of a property crash: home lending was still running at 5.2% annual growth in the year to September, according to the Reserve Bank — still much faster than the 4.4% growth in business lending. Growth in lending for owner-occupiers was over 7%. Some crash. And that’s in a consumer environment of continuing strong jobs growth, albeit with low wages growth unless you work in health, near-record workforce participation and other indicators of a well-performing economy.

Not merely is there no housing crash, but there are few of the macroeconomic factors that would panic mortgage holders and create the environment for one.

In fact, what has been spun as a “crash” could also be seen as enhancing the resilience of the financial system. In remarks to a finance conference in Melbourne recently, Reserve Bank deputy governor Guy Debelle made some pointed comments on the great property plunge beat up.

“I don’t regard it as likely that household borrowing will collapse under its own weight,” he said. “Rather, if a negative shock were to hit the Australian economy, particularly one that caused a sizeable rise in unemployment, then the risk on the household balance sheet would magnify the adverse effect of that shock.”

As usual, Crikey opts for bitchy point scoring over analysis, a problem that has dogged the masthead for many years. Neither UBS nor MN have claimed that property is going to crash. Both have provided sensible  scenario analysis in which they ascribe a low risk to such a high impact event among various other more likely outcomes. UBS’s base case is a goodly correction but not a crash. MN actually complained about being misrepresented as a crashnic on 60 Minutes. MS will very likely be right about the correction being the deepest in modern Australia. Indeed, this view is now consensus with even permabulls like Paul Bloxham agreeing, which the article completely ignored.

As for housing finance, sure it’s still growing but it’s the credit impulse that matters. That is, it is the rate of change in that growth that will determine the depth of the correction. It has been falling steadily. Moreover, housing credit growth is not the thing to watch but rather housing finance commitments, which have turned sharply negative:

One wonders why Crikey is so embittered by those who have called the housing correction right. Perhaps they are long property themselves or their reader are, being mostly Boomers. Or, like much else that the masthead does, it is a reflexive superiority that alienates the reader on every subject that it touches.

I no longer read it for this very reason despite getting it for free. It can’t wash its face on the opportunity cost.

David Llewellyn-Smith

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.

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Comments

  1. DefinitelyNotTheHorribleScottMorrisonPM

    There will only be a crash if those spanners at Labour Party HQ take a sledge hammer to the value of the family home by chainsawing negative gearing to drill into ordinary mums and dads.

  2. I’m willing to bet on 50% and raise them to 60% but need 7 years
    I’d be willing 50% 5-6 years
    And some odds too

    And someone of some note should say it’s going to crash because it’s more than likely going to crash

    • True. But those MSM muppets won’t call a definite crash until it’s already crashed.

      And that’s fine with me.

      • that data is almost 2 months old
        in the last 8 weeks the bottom has fallen out of the equities market
        thus dragging down the housing market
        super funds,
        and soon employment. (take a holiday from eo Nov and we’ll call you in feb)
        Melbourne will be down 40% by eo April.

        White collar workers in Sydney and Melbourne are starting to understand the pain wrought upon manufacturing workers by globalisation and technology change, says Reserve Bank Governor Philip Lowe, as offshore competitors challenge domestic providers of professional services.

      • “The greatest trick the devil ever pulled was convincing the world he didn’t exist”
        … so too with the housing crash.
        The longer people don’t think there is a problem the better!

    • Agree. It took Ireland 5 years to go peak2trough, we’re already a year into this. Once the feedback loop from the real economy triggers, with the end of cycle bust thrown in for good measure, it’ll be on like Donkey Kong.

    • Yeah, I used to be 40% but I now think 50% is more likely. I think 60% is possible, but it’s a bit too extreme for me. I’ll stick with 50% over several years while the economy readjusts and is reformed (I think they, gov, will be forced to reform the economy honestly or else it’s banana republic time).

    • It amused me that even property evangelists at the height of the boom to the peak around this time last year were unwilling to take my $1000 bet of min 30 % decline over five yesrs. The early-day evangelists chickened out but would have won because the boom defied gravity for so long, latter-day evangelists just look as sad and angry as discovering that there is no Dog.

  3. Bernard Salt was pegged by Arron bar in a report for the CIA as one of two Australian leaders of Anonymous….I was the other….lol

  4. “Or, like much else that the masthead does, it is a reflexive superiority that alienates the reader on every subject that it touches”…must be a marsupial thing.

  5. As for housing finance, sure it’s still growing but it’s the credit impulse that matters. That is, it is the rate of change in that growth that will determine the depth of the correction. It has been falling steadily. Moreover, housing credit growth is not the thing to watch but rather housing finance commitments, which have turned sharply negative

    +many!

  6. Ok once again slowly for Crikey. Total credit is not the right measure.

    eg –

    2017 a certain house sells for $900,000.

    2018 a first home buyer buys the identical house next door. Buys it from an old couple who paid it off years ago. Our FHB needs an 80% loan. Gets a loan of $576K, 20% deposit of $144K (what diligent savers!) and buys the house for $720K.

    Hey presto – total finance (debt) goes up but house prices fall 20%.

    They need to look at rate of credit growth (which is in reverse – oh noes!)

      • Peachy’s FHB loses his job in 2018 (he worked at Roger David) and the old couple buys his apt for $360K. (Down 20% you see).

        He cancels his debt (there goes your credit growth Peachy), checks his BTC investment and leaps from the 10th floor balcony.

        Old couple use their profits to short the banks and live happily ever after.

    • You nailed it. I put this to Martin North (DFA) a while back on how we could have credit growth in a declining volume market?
      Your explanation sums it up.

  7. This type of reporting is good for everyone.
    For those who are short or want see prices down for whatever other reason this is good because it will make government less likely to do some stupid thing that doesn’t achieve anything but makes economy weaker before the recovery or creates another moral hazard.
    Those who don’t want to see prices down will at least have few more good sleep nights since there is nothing that can prevent the crash.

    • True and it is clearly shared by the RBA… As far as I can tell, this section from Crikey might as well be a direct rip from the RBA minutes:

      home lending was still running at 5.2% annual growth in the year to September, according to the Reserve Bank — still much faster than the 4.4% growth in business lending. Growth in lending for owner-occupiers was over 7%. Some crash. And that’s in a consumer environment of continuing strong jobs growth, albeit with low wages growth unless you work in health, near-record workforce participation and other indicators of a well-performing economy

    • there is no wishful thinking about it
      the equities market has wiped out the gains from 2 years
      that is fact
      Now, how is that money going to be recovered
      to keep the ponzi rolling

  8. Crikey!. Confusing amount of debt with value of housing.

    Of course household debt has increased 12 months til September.
    1. Population growing at 1.6% pa. So take 1.6% of this rate simply to allow for increased size of market.

    2. Population growth – on top of the 1.6%, new borrowers have larger loans. So the effect of population growth is greater than this 1.6%
    Buy new home = new mortgage.
    Buy old home = new mortgage replaces either no mortgage, or replaces older (and smaller) mortgage.

    3. People pulling equity out of home before credit tightened
    People were still FOMO until earlier this year. So people were still using equity to maximise exposure to housing market. Plus home rates are significantly are cheaper than car loans, personal loans, business loans etc – so lots of reasons to pull equity out of home.

    None of this means value of housing is going up. Only that debt has gone up.

    And that is the centre of the pupil of the bullseye of the problem with a crash.

  9. I read Crikey religiously for years, it had its ups and downs but broadly it was worthwhile.
    It’s been on a downward trend since Sophie Black left as editor tbh.
    If they had an option of just unlocking Guy Rundle’s pieces, I would pay for that, I won’t pay for the rest of it any more.

  10. Fairfax will run a prominent story on literally any two-bit screen jockey who makes a ridiculous claim about property prices.

    Now that’s what I call a solid argument. Thoughtful, factual and well reasoned.

    I’ve completely changed my mind. The Corelogic data showing Sydney house prices are dropping faster than a French rifle is just Fake News. Onwards with the property boom…On On!

  11. Ah again with the appeal to consequence ‘doom ‘n’ gloom’ argument. Funny, because the same media also run ridiculous claims about property prices made from property spruikers on the way up. In fact it was a business model for at least one of them.
    Doomsayer … doomsayer … doomsayer …

    • that call from martin north was made after september
      when the collapse was under way
      when he updates his figures to incorporate the latest equity imbalances,
      many will feint. 20 years odd of belief , destroyed in 8 weeks or so.

      • Mostly true, except there’s still a lot of people in complete ignorance, they haven’t even got to the denial stage. Still a while to go.

  12. Stock of credit ≠ flow of credit

    Market (nationally) was on life support March through to first weeks of Sept. Then 60 mins went live, and everything has $ hit the bed since.

    • I wonder if this was 9 showing Fairfax how to do it.
      now the Cat is circling Domain
      expect plenty of pissing into the tent.
      (what a time to be alive??)

  13. reusachtigeMEMBER

    Crokey is totally right! Property investment is THE WAY to riches in Australia and even though the growth is a little lower than a few years ago it is still ready to boom again very soon. There really are no signs of that mythical crash that the retards have been calling over and over again for 5, 10, 15, 20 years while being fully retarded, as the real results have shown (like, really retarded those freaks have been)! Seriously, the crash people are fuglies that have never experienced the pleasure of the flesh.