Chris Joye: House prices to bounce 5-10% after rate cuts

Chris Joye believes that the conditions are ripe for a housing recovery, and projects that prices will lift at least 5% to 10% after the RBA’s second interest rate cut. From The AFR:

If the Reserve Bank of Australia cuts its cash rate twice – with the first likely at its June meeting – I expect national house prices will climb at least 5 to 10 per cent over the 12 months following the final move…

On Wednesday the RBA was privately telling bankers that they should pass through 100 per cent of its June cut, and potentially more, given the sharp compression in funding costs…

Our analysis indicates that APRA’s change will enhance this person’s borrowing capacity by 14 per cent, with the impact growing as home loan rates fall. If the RBA cuts twice and the cheapest home loan rates fall from, say, 3.5 per cent to 3.0 per cent, our analysis suggests that borrowing capacity will lift by 20 per cent.

There’s no doubt that the National Property Protection Racket (NPPR) is in full swing. Negative gearing and CGT reform is dead, first home buyer stimulus and rate cuts are coming, and APRA is easing its macro-prudential controls via its reduction in the interest rate buffer. We also expect more policy easing to come.

If you are looking to buy a house to live in, get cracking. Because prices will likely bottom in the second half. While we don’t expect to then see wild growth reminiscent of the last few cycles, the ingredients are in place for a modest recovery. That is, until the next global economic crisis hits (whenever that is), by which time Australia will be running very low on monetary and fiscal ammunition.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Latest posts by Unconventional Economist (see all)

Comments

  1. macrofishMEMBER

    I find the sudden change in direction by MB odd, Australia elected a BAU government and we expect the entire system to turn around all of a sudden?

    • Not really. In the matter of weeks we’ve seen big changes. 1) Coalition victory (no NG or CGT reform); 2) FHB stimulus; 3) APRA macro-prudential easing; 4) Admission by RBA that rate cuts are coming.

      These are very big changes. The NPPR is firing up its engines.

      • McPaddyMEMBER

        The only one of those that wasn’t very obviously coming was the ALP loss. But perhaps they weren’t that obvious to those who don’t dwell in basements making comments on blogs, so they’ve altered their world view suddenly, giving a confidence boost despite there being no basis for it?

    • Well there was a lot of new policy stacked against the housing market due to the political capital people believe Labor had (RC, NG/CGT, bank crackdowns, APRA regulation, etc). Now that all that pressure is gone/withering and Liberal’s now have the capital to say “No” to these changes publically price action should reflect that. A lot has changed in the past week.

    • BubbleyMEMBER

      As a retail store owner, I’ve seen an immediate bounce in business post election.

      People are comfortable with “the devil they know” and are now spending again. The relaxing of banking standards, expected rate drops etc is already causing properties to sell here in Darwin.

      And I also agree with UE about those changes – they are huge and designed to re-inflate the housing market.

      • It hasn’t even been a week, are you mental?

        Let us know how things are going in August.

      • macrofishMEMBER

        Nathan that is the part i cant handle, its been less then a week and suddenly its boom times again.

      • BubbleyMEMBER

        I see your point but this is what is currently happening at the coal face of retail. I get to talk to a wide variety of the Australian population, more so than people who work in an office environment, so my view may be more immediate than others.

        Personally I think there will be two week honeymoon for the LNP. The RBA has already stated it will drop interest rates in the first week of June. From recent discussions with a business bank manager, the amount will be 0.5% This will inspire confidence.
        These will take two-three months to work through the system bringing it to your August date. The RBA has already stated that there will also be a .25% after that. My expectation is that one will be in Sept but more likely October as it will feed into the Christmas trading period.

        For me, I expect things to bounce until then. After Christmas…. well, that’s when I expect things to start seriously dropping again.

        But I don’t have a crystal ball and I’ve been wrong before.

      • Those happy punters think that the LNP government will provide employment security and thus mortgage security. They are deluded on so many fronts, but the delusion will last mere weeks this time and it’l be back to pants sh!tting.

        And in Darwin of all places …. hahahah

    • I’d love to see some number crunching comparing impacts of the recent changes vs what could have been but with labors immigration plan.

    • tripsterMEMBER

      Agree, it is very odd.

      How much can prices really be expected to grow without wage growth? What about the data today showing that domestic and overseas travel has fallen off a cliff. Or the construction slow down. Or the restriction on investor only lending which still remains in place.

      It isn’t clear to me why houses would suddenly be rebounding. Is MB saying that a Labor loss is the catalyst?

      Interest rate cuts were already coming and have been part of MB’s base case for a while.

      I am pretty confident this is going to be another case where MB turns out to be hopelessly wrong (2011/12 slow melt hypothesis on house prices – glad I bought then, FMG definitely going insolvent – I lost count of how many articles there were about that. The next one for the ages is going to be the 2019 house price bottom.

  2. “If you are looking to buy a house to live in, get cracking”

    Well I’ve cracked and picked up a bargain recently. We move in next month…

    Reus – you’re invited to the house warming, please bring your friends 🙂

    • Good on you for picking up a bargain…

      I can’t bring myself to do it.

      Thankfully my business is doing well, as well as bonds and USD, and various short positions, are doing very well thanks 😀 … so it’s a hedge against housing going up again (after being wrong for so many years!)

    • wasabinatorMEMBER

      Same. Saved massively from the peak and knew this wasn’t going to be permitted to go on forever. Settle in a week and can wash my hands of this saga completely (cash buyer). This has happened time and again in Aus, so it’s no surprise. Some say the Aussie consumer is tapped out, well that’s why they bring in fresh alien consumers to fill that demand (and trains and roads). Am leaving my leftover funds in the MB fund though!

  3. Slashing interest rates-an admission that the economy is languishing and against stiff international headwinds- will somehow be a positive for a crashing housing market?

    I guess if you look at the housing market in isolation and ignore everything else……wait, is the news.com.au or MB? so confused….

    • Most punters have no idea about the Global Economy, they are busy picking up nickels in front of a steam roller.

      • BubbleyMEMBER

        Australia – where people who don’t own shares are terrified they are going to lose their franking credits.

      • HAHA! @bubbley – that reminds me of the 2013 election when a lady I was working with said she was voting Liberal because there was “no way I’m paying a carbon tax.”

    • Mark Lathams Brain

      This is incredibly salient point.

      Cutting interest rates is not a sign of an economy booming, it is not a sign that house prices are going to rebound.

      Cutting interest rates is a sign that the economy is deeply troubled and things are going to get worse.

      The obsession with “housing” means people can’t see the forest for the trees and only understand cutting interest rates as cheaper loan servicing. Its not about cheaper loan servicing, its about crashing employment, collapsing consumer demand, depressed sentiment, and prolapsed business activity – not loan repayments. How people have forgotten this is beyond me – its economics 101.

      Here’s an even MORE important reminder. In every single collapsing housing market around the world interest rates were slashed, in order to prevent further drops – it accelerated those drops. It was then done again and again – in every case, slashing interest rates accelerated drops. All markets, every time.

      There is a great interest in comparing Australia to Ireland – perhaps its time to look again – slashing interest rates accelerated Ireland’s crash – you know what else accelerated their crash ? Re-electing the same government who caused the problems.

      Its like we are living a glitch in the Matrix – its the “exact same black cat”.

      .

  4. DominicMEMBER

    Okay, so house prices rise 5-10% and then what? Given how quickly liquidity can evaporate in the property market that’s really not much of a buffer — particularly once you factor in costs.

    • nexus789MEMBER

      I think bounce is the key word. The might be a small uptick but the decline will resume and may even accelerate after the optimism dissipates.

    • Torchwood1979

      I hate to say it but Joye’s short-medium term forecasts for the housing market have been very good so I expect his 5-10% rebound to come to pass.

      As to “than what?” Of course that question isn’t answered but I think the answer is “The market will dip again and then the powers that be will attempt another can kick”. Whether that attempt works is another thing of course, but every time we think the RBA/APRA and government are out of ammo they seem to find a few more bullets to shoot off.

      • BubbleyMEMBER

        Expectations are 0.5% in June and another 0.25% later this year.

        There is no RBA meeting in January, so February will be be very very interesting as the RBA will only have .75 of a percent to play with or three .25% shots left before ZIRP.

        Fun times.

    • If the rate cuts fail to regain the previous market highs that can only mean one thing; the bubble’s growth potential has been exhausted.

      Will 5-10% rise be enough to print a new high?

      • DominicMEMBER

        Unless the global liquidity situation eases markedly there’ll be no new highs. Straya’s money supply growth is at zero currently and will no doubt lift a bit with the latest measures but the top won’t be regained until (unless) massive global monetary pumping fires up.

    • TripleBeamMiracleDream

      they won’t bounce at all. no sentiment & 1 of every 4 houses already empty. chewin’ that water. we got heaps apparently.

  5. yeah/nah. I listened to his jolly swagman podcast last night until I couldn’t stand any more, and he explained his reasoning for 1% cut = 28% house price rise, based on a study by someone whose name I forget who managed to show that all of the post GFC house prices rises were related to RBA interest rates with a 97% correlation. If this is the case then there can’t have been a place for Chinese inflows in the modelling, the size and ferocity we can only guess at because no-one recorded it but were undoubtedly highly significant and in fact as many have said here, most likely set the margin. So it’s all supply with no place for demand, but my guess is that sentiment has turned…there’s been enough passage of time to just about usher out the baby boom generation. My 2c, not an expert.

    • DominicMEMBER

      Yup and there’s, frankly, too much linearity in that claim. Sentiment, unemployment, current financial conditions – are these all identical to prior times? There are so many factors at play, to suggest interest rates are the only determining factor is lunacy. But very typical of the thinking among modern-day economists.

    • Mark Lathams Brain

      There was a lot, and I mean a LOT, of self back slapping for how smart they were in the podcast and it was difficult to listen to. “Someone with my accent and vocabulary must be wealthy” – really ? Just….ugh.

      His position on the effects of a falling dollar were that this will effectively restore Australia to economic prosperity based on two things – mining and tourism.

      Iron ore at $80 a ton according to him is effective $160 AUD when the AUD is trading at .40 cents. That is a huge windfall according to Hempty.

      Really ? But surely everything we buy from offshore with that money is also twice as expensive ?

      The second thing which will save us is tourism.

      I reached out to him regarding the offshoring of our commodity revenue and transfer pricing tax minimisation which the LNP effectively encourage – dismissed that with “huge uptick in mining employment”

      The guy is not as bright as he thinks he is. I have no doubt his US hedge fund partner that he “showed around Sydney” is smart as hell.

    • And his model didn’t account for dodgy HEM and reductions from high LVR, so 97% confidence is more of Joye talking his own book. I suspect Aussies are so addicted to “equity mate” this will certainly put a pop back in short-term, but the fundamentals around wage growth aren’t changing and unemployment continues to rise. Secondly half of 2020 will be fun

    • And his model didn’t account for dodgy HEM and reductions from high LVR, so 97% confidence is more of Joye talking his own book. I suspect Aussies are so addicted to “equity mate” this will certainly put a pop back in short-term, but the fundamentals around wage growth aren’t changing and unemployment continues to rise. Secondly half of 2020 will be fun. Still, there’ll be no shortage of mugs wanting to lever up and go hard

  6. Where is his analysis? Where is your analysis? Do you expect building approvals to stabilise at the current level of 27% off its highs and how will the economy fill in the gap from the construction recession? Where will enough buyers come from to soak up the huge oversupply of for sale and rental stock particularly considering fhb’s have already been bought forward from the recent huge stamp duty cut and falling house prices boost?

  7. I mentioned on Monday how our last remaning IP (SMSF) on the NSW mid north coast was snapped up by a potential buyer at full asking price. We have had a 2nd suitor offering $11K over the asking price.The original buyer has offered to match and has offered to sign contracts by end of today. A descent profit can be booked and tax rate on capital gains is only 10% as property has been owned for a few years now.

    The Missus and I have discussed and have decided to look through a minor bounce in prices.The place is in need of some extensive repairs so price is good. We think prices at best will be flat over the tne next few years.

    • Wonder how many are sitting there also willing to look through a minor bounce in prices to buy.

  8. Farang wants boom boom

    There u go tards. U idiots were blindly cheering on rate cuts simply because HnH was assuring you that it will have limited effect on house prices. Now others are correctly telling u otherwise…and HnH is easing into this view while trying not to spook his crashtard readership. Enjoy the ride back up, dunces

      • Farang wants boom boom

        Drop the pretense. Tards like you misread the market and will continue to do so.

        Can u afford to buy a house yet? Lol

      • BubbleyMEMBER

        Sigh… reminds me of this saying

        “Never argue with idiots, it brings you down to their level and they will beat you with experience”

    • Now I understand.. You want Boom Boom but you’re not getting any which makes you obnoxious and aggressive and crazy.. And that’s why you’re such a weird knob. I’m starting to understand the whole incel thing. Fascinating.

      • Farang wants boom boom

        Your assumptions are wrong, im no farang. But silly old coots like u fit my handle to a tee

    • Nay, don’t agree.

      It’s the news of the LNP’s deliberate, targetted juicing of unlimited numbers of subprime FHBs that is new – it doesn’t mean the crash is off, just getting slowed down.

      Saying there will be bull traps – which is all MB is really saying – is in no way disingenuous or inconsistent with the general price decline (in real terms) thesis.

      Even if the entire kitchen sink is thrown at the market, it will still eventually bring itself down, even with several bull traps.

    • Wish I could do this… missus wants to be with family in Melbourne. I’m trying to resist buying into any kind of recovery. As I know it will be short.

  9. SupernovaMEMBER

    Was told Joye has a significant vested interest in the Aussie MBS market and with defaults on the rise he and his considerable FIRE sector mates and institutional bureaucrats are quite rightly nervous about their positioning. These people simply placed all their eggs into Australia’s Old World Economy basket of ponzi-debt RE and now expect to be bailed out. At this stage I’m not quite sure who is the greater criminal, Bernie Madoff or Mr Joye and his mates.
    Perhaps in 3 years time Australian taxpayers will see fit to vote in a party whose number 1 policy is to produce a Federal ICAC to deal with this current and impending policy disaster.

    • Listening to Martin North and Uppercut (crazy) Adam’s yesterday he reminded us that the powers that be want to hold off this crash as long as possible so that a Global event can come along and kill it, and they can wash their hands and say “see it wasn’t our fault, look over there”. I honestly believe this is the case.

      • BubbleyMEMBER

        Admitting there is a problem on their watch does not get them re-elected to their cushy jobs.
        It’s much better to blame someone else – ie external black swan event

      • Gosh you think they will let it crash even then? That’s their whole industry and economic model of making money down the toilet – bascially asking them all to get new jobs. When there is a crisis you can then resort to extreme measures like QE/MMT. Once we start printing we won’t be able to stop or withdraw either – just like the US we will never unwind our QE and it will become part and parcel of RBA decisions similar to interest rates are today.

        They actually need a crash to have the cover to enact these measures. In a crisis as a government you can get away with some drastic changes.

      • Mark Lathams Brain

        Is that like the GFC was not Labours fault ? Not really relevant unfortunately.

        LNP are going to have to cough up billions in stimulus – and on top of their doubling of the deficit, crashed housing market are in serious trouble.

  10. TripleBeamMiracleDream

    seriously, no one listens to that clownshoe Joye…. that guy needs to reveal his book or sit down. Next time he opens his trap, just ignore him – not worth mentioning. He just makes risible comments like some sort of drama queen teenager.

  11. This will light up the prices a little under $1m but over I don’t think so, that was all the Chinese and they aint coming back. Overpriced real estate around the world like LA San Fran, NY, London, VanC, are all falling.

  12. Meh still a bubble. I’d say the current round of “positive” news is just the bulltrap – return to “normal” type phase. Lowering IR’s effectivly just lowers the carrying cost of a long trade in a falling market. The kitchen sink approach with loosening regulatory controls is expected at peak exhaustion in a market with few greater fools where “fundamentals” (high debt, low wage growth, fewer external buyers) are ignored.

    Not saying there ain’t money to be made, or pockets where valuations are reasonable with little downside, but unless I absoutely needed to own the house I lived in, or found a cracker of a place to live and watch Scummos Armageddon unfold, I’d ignore highrise Harry’s “not to think” suggestion and think real hard. There’s plenty of other bubbles around to speccy on with leverage, most of em with more liquidity if things go south again.

  13. We get a six month reprieve until any advantage of the interest rates cut wears off if any. Aussie dollar may decline chewing some of that advantage for some people. The 1M in mortgage stress, the huge over hang of supply, the massive indebtedness. All these things do not go away. Neither do the major structural inefficiencies in the economy. The end game remains the same. The wheels will still fall off, likely based on external events.

    • BubbleyMEMBER

      This is my expectation with a slight bump for Christmas.

      RBA doesn’t meet in Jan, so the Feb 2020 meeting will be really interesting.

  14. Jumping jack flash

    Only if banks pass it on.
    Cutting the cash rate does nothing for consumers buying debt dollars to spend on houses.

    The best debt is government debt, it is usually cheaper, and at least it has a better chance to be used to increase national productive capacity so there is a better chance of the debt and its interest being repaid without being a net drag on the economy.

    But then again, government likes flashy infrastructure projects which do nothing to repay the debt they take on – which is the main issue.

  15. I thought the baby boomers were all going to rush to the exits and stock up on those sweet franking credits. Stuff property, go long blue chips.

  16. If people want to be liquid and still get exposure to any bounce best to buy the Aussie banks.

  17. I believe there falls will be mitigated….just can’t be sure how: more slowly negative? Flat? Slight rise? Hard to say….just SOME decent effect…!

  18. mikef179MEMBER

    Well, looks like MB is in lockstep with the mainstream now. Everyone expecting the market to bottom to soon. Since everyone is expecting it I guess that is what is going to happen.

  19. Nobody thinks it might just level out? Its either tanking or booming? Housing is turning out to be more volatile than stocks.

    • mikef179MEMBER

      Thats because all the investment money is in housing instead of in stocks. Surely better to have a volatile stock market than a volatile housing market, you would think, but apparently Aussies know different.

  20. Well there are more green shoots in the last week. Was -0.12 and then +0.02 today