Martin North presents property bear case to fundies

Good stuff here from Martin North:

This very much reminds me of the 2003 Sydney bust. The west continues to fall as the east rebounds. This will lead to stagnation in time as the “move up ladder” stalls with western households trapped in negative equity.

The difference this time is that in 2003 Sydney was rescued by the huge income gains that flowed from the mining boom. This boosted households via wage and rental gains. This time both are falling as well.

This has L-shaped recovery written all over it, and bull trap when we add any external shock.

David Llewellyn-Smith
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  1. Pay attention to what he says about the CoreLogic index. CoreLogic have lost their recent sales data source to REA, which means the CoreLogic index now uses a different methodology, and nobody at CoreLogic is prepared to describe how it works.

    • Interesting. Can remember the REA economist telling Martin in another video that Corelogic didn’t include any data from REA which would have the largest amount of sales data so the increases couldn’t be trusted and didn’t reflect the issues they were seeing.

  2. In 2003 everyone still had to pretend that not everything is about credit and housing. This meant governments were shy about bailing out housing directly.

    There is no such constraint now.

      • Apparently not because I saw that house prices in Sydney and Melbourne are rising $3000 p/week lately and yet, nobody is getting wage rises (or most are not) so somehow houses can levitate above wages for a long time it would appear. Of course it’s not sustainable, but who knows when it will come back and bite us? Hopefully soon.

        • In pure Fiat terms it may well be that these prices are very very low.
          We’ve got an economy. It’s just totally oriented to urban consumption while eating up the whole production base.

      • I’d like to see an economy too, mate. And who knows, maybe you’re right and we actually NEED one.

        But I’m just calling it as I see it – in 2003 the government couldn’t explicitly and directly goose housing. In 2019, they can. This is an important difference to recognise when placing your bets.

        • All you need is money moving around in a sustainable way. That’s an economy. How that money is earned, where it comes from, and how it flows are all open questions and on this point Peachy is probably right. Results in a weird, probably more corruptible economy but there you go. Debt is a monetary problem and not entirely a real world constraint (unlike say gold, dirt, etc). Helicopter money is probably the end game to this vs debt deflation with wild swings taking both sides out in the meantime.

          • Not really. A real economy is one in which savings / capital are increasing through profitable endeavour. Shifting money around is meaningless and fundamentally damaging to the economy. And there is nothing sustainable about creating ever more money from thin air either – that has natural limitations and is also highly damaging to the underlying economy because it falsifies the important signals, like prices of goods.

            As for gold, I wouldn’t worry about that too much — the smart money knows what happens if / when asset deflation arrives: asset prices get pumped straight back up with even more money printing. Only the weak hands will be cleaned up. Central banks have been net buyers of gold for several years now reversing a decades-long trend. And then we had this gem from a recent report out of the Dutch Central Bank:

            “… If the whole system collapses, the (central bank’s) gold stock offers a collateral to start over. Gold gives confidence in the power of the central bank’s balance sheet.”

            Straight from the horse’s mouth. Gold’s going nowhere but up over the next few years.

          • I never said Dominic it was good, or a “real economy”; nor does it make the economy any more functional. I just think people confuse the “real economy” from the financial economy which is where the real problem is as they become more divorced from each other. We have a debt based problem. As Peachy eludes to Government response plays a big part in how you trade this; and whether the pain of balance sheet adjustment which is required to get things moving again is on the borrower or saver (hint I think savers will take the hit even more than they already are – they have something to lose after all). A hard reset as you mention would punish savers more than debtors by definition; if people’s savings (which is debt) are wiped then so should their debts be. A “savings glut” is a nice way of saying a “debt glut” as one person’s assets is another person’s liability in the financial economy unlike the real economy.

  3. The 2003 boom was driven by the First Home buyer grant post introduction of GST, and it was spectacular at 20% increase a year. While it’s a given it is not sustainable, the question remains : how long will the mini-boom last?

  4. Apart from the mining boom, also important to remember that in 2003 Australian wages were coming off a very low base compared to other countries, but this is not the case today.

    • Gotta be able to get loans. If you’re not already asset-rich (which comes from property), this is more difficult. Even when the Scomo 5% deposit guarantee comes in, you’ve got to have the credit score and the transaction history the lenders are looking for.

    • Western Sydney as a whole didn’t fall as much as the city during the last 2 years in the bust so I don’t expect it to go up as much – it generally experiences less volatility for the established suburb profile (where most people actually live) bar the boom/bust suburbs (e.g. Blacktown, new Camden suburbs, etc). As an example on the extreme case the best areas performance wise during the falls were the Central Coast and Blue Mountains falling much less than the city. It’s easy to cherry pick the suburbs for whatever case you want to make. For many people I know out there the price falls were maybe 4% or so, conversely places like Ryde were -20% down.

      Suburbs that didn’t over-leverage during the boom don’t have the same price growth sure; but don’t have the same bust either.

  5. Excellent contribution by Martin North.

    Does anyone know to whom he was speaking? And what is the deal with these chats, does MN do it for free for brand building or is he paid? It does seem to me that if he was talking to a room full of analysts, the discussion was a bit low level and not much more than you could get off his YouTube channel and blogs. It was still excellent, but I thought pitched at non financial types.

    I can’t work out why there was so much footage of his train ride to the big smoke, but I guess it is one of his eccentricities. Good to see there are not as many ice addicts as on the Newcastle line.

    Getting onto one of those trains at Hornsby or Strathfield in the hope of a quicker trip is a real heartsink once you enter the carriage, but by then it is too late. You are trapped worse than a Mascot Towers owner with an $800,000 mortgage.

    • Martin_DFAMEMBER

      Not a paid gig (other than an light lunch) and speaking to banking analysts and hedge funds as part of a series of talks arranged by an investment bank. The train trip was part of the “context”, that’s all.. (and some of my YT followers like that personal touch).

      • So, Marty, how do you get 4,500 survey responses each month. How many staff do you employ to do this?

        I’m beginning to think that this doesn’t actually happen….

        • Martin has stated before he’s paid by certain businesses to collect the survey data, however he cannot disclose who that is…

          • I am not asking who funds him.

            I’m asking how (given manna from heaven funding) he actually goes about collecting 4,500 responses (which is what I think he claims) per month.

            I have real trouble believing that this is logistically possible for a one-man outfit. Or a 3 man outfit. Or even 3 women.

            If it’s 10 people doing it, then it begins to cost a lot. A lot more than I would expect anyone would be prepared to pay, given my sense of the utility of the data.

            So, Marty, how many surveys do you get per month and how many people do you employ to do this?

      • Hi Martin,

        Should get Leith (Unconventional Economist) on the channel to talk about the population ponzi, the wider ramifications it has on the economy, GPD per capita and what this means for Australian’s quality of life. Think it would be a win-win for both MB and WtW.