Louise Christopher: A new house price boom is born

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The AFR is wasting no time in bringing the spruik back with Louis Christopher out of the blocks, now expecting 2% growth in Sydney this quarter and a modest 4% in Q4:

“I’m not ruling out a new housing boom,” he said.

“We have low interest rates and loosening of credit restrictions. I’m increasingly confident that we’re going to see double-digit growth in Sydney and Melbourne, even without another rate cut,” he said. “In fact, I think we’re on track to see that happen by next year.”

…”If we’re going to enter into a global trade war and it gets nasty, it will be a significant risk for the Australian economy and it will have an impact on a number of fronts,” he said.

“The upside risk is that we’ll get another interest rate cut into this upturn, which could create a potentially dangerous new housing boom and the regulators may step in to restrict credit growth once again.”

As mentioned many times, because property is illiquid, when the market moves it tends to do so in gaps. The indexes don’t do a very good job of representing this but it does mean that big price movements at market turning points are possible. In my area, prices already look like there never was a correction.

The more important question is whether or not this shift can be sustained. Christopher is right about the dynamics in play. There are more rate cuts coming. But the base case is also for global recession in 2020 which will shock property as stocks crash and unemployment climbs.

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There will be no China to save us, either, given the trade war will offset any stimulus regardless. That will constrain any Australian fiscal support, though some will certainly be forthcoming.

Alas I see little chance of APRA tightening credit. It is deeply corrupt with a disgraced chairman now beholden to the Government’s bubble reflation plan. If it moves it will be when prices have soared 50%. The RBA will never hike before we deploy helicopter money.

For me the calculus is unchanged. FHBs might as well buy. That decision is political. Though avoid deep debt when doing so and assume prices will fall not rise into the future. Investors should sell into any strength.

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One way or another, China is going ex-growth over next few years and commodity prices have a long way to fall yet. If you think wages are constrained now just wait until that happens.

That income shock does not bode well for rents or property prices long term.

About the author
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.