…we expect RBA rate cuts & APRA credit easing to trigger a ‘mini-boom’ for home prices (5-10% y/y) & home loans (15-20% y/y). Nonetheless, ‘this cycle will be different’…we expect much of the typical multiplier from strong house prices, to the ‘real’ economy, to be unusually muted in the upcoming cycle. Housing sales volumes collapsed & show a very little recovery so far, with a record low turnover rate a drag on renovations & related consumption…our lead indicator of land sales indicates ongoing weakness that even worse than our (long-held & relatively bearish) forecast for total dwelling commencements to fall to 170k in 2019, & stay low in 2020…construction employment is likely to start to contract sharply ahead… the wealth effect is likely to be much smaller than in prior cycles, given savings already slid to just 2.3%, the lowest since 2007, and household debt-income is already a record high of ~200%.
…public demand is the almost entire driver of GDP & jobs, but its growth rate has likely peaked; with the Federal Government committed to significant fiscal consolidation & 19/20 Budget surplus. Hence, the modest economy-wide deleveraging cycle in place since 2016 is likely to continue out to 2020, the longest in over 40 years.
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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.
